Stop Juggling and Start Planning Retirement

Physician's Money DigestJuly 2006
Volume 13
Issue 7

We are living in acountry of totalconfusion, at leastwhen it comes tomanaging our retirementaccounts. Statistics confirmthat a growing number of investorsacross the nation are finally admittingthat they don't have much interest inmanaging their own retirement portfolio,which, for most Americans,amounts to a work-sponsored retirementplan, such as a 401(k), 403(b), orSection 457 plan.

It was fun while it lasted, especiallywhen the market was churning out25% returns each year. Then alongcame the 3-year bear market, and nowa recent report by Boston College'sCenter for Retirement Research revealsthat an increasing number of workerswould prefer to pass on the managementof their retirement portfolio to afinancial expert.

While workers are clearly expressingan aversion to managing their ownretirement portfolios, our own governmentis contemplating legislation thatwould require these same folks to managetheir own private Social Securityaccounts. As a result, it is quite possiblethat workers will soon be faced withthe juggling act of managing theirworkplace retirement account, a privateSocial Security account, an IRA,and any taxable accounts on top ofthat. To survive this madness, it mightbe in your best interest to look beyondthe greed and high-priced solutionsoffered by the Wall Street crowd andformulate your own investment strategythat allows you to combine all youraccounts into one unified portfolio.

If you are new to the Coffeehouseand are considering our approach toassist you through this financial maze,it is time to clear up some confusionregarding our three simple principles.The following are common misconceptionsabout Coffeehouse investing:

•Myth 1:The Coffeehouse philosophyconsists of Vanguard funds.The Coffeehouse philosophy is justthat, a philosophy. It is based on threeprinciples: diversify in different assetclasses, capture the entire return of eachasset class, and develop a long-termfinancial plan. The CoffeehouseInvestor has nothing to do withVanguard Index funds, even though,for the sake of articulating the philosophyin this column, I have presented aseven-index fund portfolio representedby appropriate Vanguard funds.

In my opinion, the Vanguard Groupdoes offer the best lineup of indexfunds for do-it-yourself investors, butthey certainly aren't the only option.You can build a Coffeehouse portfoliousing index funds from other mutualfund companies, and many physician-investorsbuild a portfolio using onlyexchange-traded funds (ie, index fundsthat trade like stocks on major stockmarket exchanges).

•Myth 2: The Coffeehouse philosophyconsists solely of indexfunds. Although the concept of indexingis the backbone of our investmentphilosophy, you can build a Coffeehouseportfolio using actively managedfunds, and in many cases you have nochoice, especially in 401(k) accountswhere selections are limited. Thebiggest challenge is to identify characteristicsof these managed funds thatclosely mimic the index funds you wantrepresented in your portfolio. Once youhave chosen the appropriate managedfunds for your portfolio, our secondprinciple of capturing each asset class'sentire return still adheres, and is accomplishedby never trading these funds,except for rebalancing purposes.

•Myth 3: The Coffeehouse philosophyrequires an investment in thestock market. The first step toward becominga successful investor is to createa long-term financial plan. If, in doingso, you discover that you can reachyour financial goals by limiting yourportfolio to a 10-year Treasury bondladder, you are a successful CoffeehouseInvestor. If you're like me, Treasurybonds won't get the job done. In pursuitof higher returns, you might be facedwith the task of diversifying your portfolioacross four or more different accounts,and likely to end up with 3times that many investments. Applyingthe Coffeehouse philosophy to this challengeis a great way to start.

Bill Schultheis is the author of The CoffeehouseInvestor: How to Build Wealth, IgnoreWall Street and Get On With Your Life(Longstreet Press; 1999). He is also an investmentadvisor with Pacific Asset Managementin Kirkland,Wash. He welcomes questions or commentsat 425-820-1769 or more information, visit

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