PRN: Financial Factoids

Physician's Money Digest, April15 2005, Volume 12, Issue 7


Followers of this column, a particularlyliterate and intelligent bunch nodoubt, have noticed that I have anaffinity for the little number or idea (ie,the factoid) that may illumine biggerconcerns. Sometimes the right chordwill be struck and something beneficialresults. I suppose that's how I became achampion once upon a time.Here are some of my recent gleanings,bon appetit:

•The typical mutual fund's overheadruns between 2% and 2.5% annually,all of which doesn't show up in theexpense ratio. The average yearly tradingturnover runs some 100%, so youdon't have to look far to see why it is sohard for funds to beat market indexeslike the Dow and S&P 500. This is one ofthe main arguments for investing inindex funds, which stay constantlyinvested in the same stocks, running anoverhead of 1% or less. Your bestchance of owning an equity fund thatlands in the top 25% of performersover the long run is to buy one that hasexpenses in the bottom 25%.

•A Merrill Lynch survey found thatpeople think their biggest financial mistakeswere waiting too long to startinvesting and holding on to losers fortoo long. Interestingly, their brokersdisagreed, citing failure to observe fundamentalssuch as asset allocation andperiodic rebalancing. You have to wonderif they're still on speaking terms.

•Financial author Dr. William Bernsteinsays that if you are comfortablewith your investment portfolio then youare not diversified. Diversification is anexplicit recognition of one's ignorance—a bit of wisdom there.

•You may not like to pay taxes onyour investment gains, but it may easethe pain to think of taxes as anacknowledgment of good choicesmade in the past.

•In two of every three marriages,there is a spender and a saver. The onlything that matters is that you know whois who and have an accommodation.

•Never forget that your receptionistis your vice president of first impressions.

•There is nothing truly objectivewritten about investing or personalfinance. In addition, all generalizationsare false, including this one.

•Lack of money is not the main obstacle;too often it is the lack of an idea.


•The 2005 limit on a tax-deferredIRA is $4000; if you are over age 50 it's$4500. For 401(k)s the limit is $14,000and $18,000 for those over age 50. Theover 50 exception is to let people"catch up."The earlier in theyear you put money in the account, themore you will end up with, often tensof thousands more if done consistentlyover your career.

•If you wonder why advisors keepharping on investing for the long runand not on the 3 years that surveys tellus is what the majority think the "longrun"is, let me leave you with twothoughts. John Maynard Keynes wrote,"Markets can remain irrational longerthan you can remain solvent."And SirWilliam Osler pointed out that humilitycomes from realizing that outcomes,financial or otherwise, are not theresult of our work alone.

a practicing

physician who is a partner

on the Stanford University

Graduate School of Business

Alumni Consulting Team. He

welcomes questions or comments


Jeff Brown, MD, CPE,