Get a Leg Up with Do-it-yourself Investing

Physician's Money DigestApril 2006
Volume 13
Issue 4

Managing your portfoliowithout theassistance of a financialadvisor canbe an immenselygratifying experience. But I suspect afew physician-investors who are staringretirement in the face are wakingto a realization: Managing a portfolioto last a lifetime is a little more complicatedthan simply buying Vanguard'sS&P 500 index fund and gettingon with their life.

Coffeehouse Strategies

The three Coffeehouse Investor principlesare a good place for do-it-yourselfinvestors to start: diversify in variousasset classes; capture the entirereturn of each asset class through lowcostindex funds; and develop a long-termfinancial plan. Physician-investorswho commit to these principlesembrace a long-term buy-and-hold philosophythat is preached but rarelypracticed by those who work in thefinancial industry.

For much of Wall Street, especiallystockbrokers who masquerade as financialplanners, it is hard to maintaina buy-and-hold mentality when yourincome is based on a buy-and-sell compensationstructure. On top of that,Wall Street's beat-the-market mindset ishardly one that promotes a buy-and-holdway of life. Here is the irony of itall: The more your stock broker isintent on "beating the market"to padyour retirement account, the greateryour chances of underperforming themarket. You will end up subjectingyour portfolio to all the risk associatedwith common stock ownership, whilelimiting your upside return.

No-fee Solo Investing

When you plan for your retirementalone, you avoid Wall Street's exorbitantfees. If you pay your financialadvisor 1.25% in management feesand they put your money in managedmutual funds that sport a 1.5% expenseratio, any perceived benefits of afive-star portfolio quickly evaporate.Now add in the fund's 1% tradingcosts and tax liability in taxableaccounts, and you might as well gobuy yourself a 1-year CD instead.

A simple Coffeehouse portfolio thatconsisted of a 60/40 stock/bond splitgenerated a total return of 5.97% for2005, with the all-equity portion up8.8%. The bond portion of this portfolioreflects an intermediate-term bond indexfund and the equity portion is equallydivided among large cap, value, smallcap, small value, international, and a realestate investment trust. I'll let you makeyour own analysis of our portfolio comparedto the blue chips of the Dow,which finished 2005 with an underwhelming-0.68% return.

For do-it-yourself investors whoembrace the three Coffeehouse principles,you have made the most importantinvestment decision of all: Youacknowledge that you, not some WallStreet wizard, are responsible for yourfinancial well-being throughout retirement.You also recognize that it is yourown decisions, like managing yourexpenses or working an extra year,that will allow you to own the mostprecious asset of all—emotional freedomthroughout retirement.

Bill Schultheis is the author of The Coffeehouse Investor: How to Build Wealth, Ignore

Wall Street and Get On With Your Life (Longstreet Press; 1999). He is also an investment

advisor with Pacific Asset Management in Kirkland, Wash. He welcomes questions or

comments at 425-820-1769 or For more information, visit

Related Videos
© 2024 MJH Life Sciences

All rights reserved.