Planning a financial future is vital for new cardiologists

Financially successful cardiologists ask frequent questions and take an active role in their future.

Graduating cardiology fellows should have a plan for asset management, risk management and debt management, Ron Paprocki, JD, CEO of Mediqus Asset Advisors, said at the American College of Cardiology Scientific Session 2005.

Mediqus Asset Advisors is a financial planning firm based in Chicago that focuses specifically on advising physicians.

“A lot of new physicians suffer from what I call the ‘around-to-it’ syndrome. They’ll plan their finances when they get around to it,” Paprocki said. “That’s basically the number-one reason why physicians are not as financially successful as they could be.”

Paprocki said financially successful cardiologists ask frequent questions and take an active role in their future rather than waiting passively for advice.

Asset management

The most important question in asset management: How much capital is needed to produce a comfortable retirement income?

“That may seem far off in the future for you, but there are a lot of subquestions about how much return you’ll need to earn and what you want your life to be that spin off from that,” Paprocki said.

Paprocki said there are essentially two types of assets: loanership and ownership. Loanership assets include certificates of deposit, government bonds and municipal bonds that typically pay about a 5% rate of return. Ownership assets include stocks or real estate that typically offer a 10% rate of return.

“So why would anybody invest in a loanership asset if it pays less in return? The answer has to do with time frame. If you want to invest over the short term, then a loanership asset is the right choice because you can be more certain what it will be worth at a given point in time,” Paprocki said. “Ownership assets tend to have higher rates of return, but the ups and downs at any given time can be erratic.”

Over a long period of time, small differences in rates of return can produce large differences in wealth. One dollar invested in 1926 would be worth $2,425 in 2004 at a 10.37% rate of return, Paprocki said. However, the same dollar invested at 12.5% over the same period of time would be worth $15,152.

Risk management

A doctor’s most important financial asset is his ability to practice medicine, which can be put at risk by death or disability.

“The question to ask when considering the level of disability insurance you need is, can I afford to retire today? If you are unable to say yes, then you need to have some protection in place,” Paprocki said.

Paprocki said cardiologists should be aware of the waiting period, the benefit period, the payment period, and the amount of the payment in any disability insurance policy. “A cardiologist should ask about the occupational classification as well. If you can’t be insured for your work as a cardiologist, then that is an inferior definition of disability insurance,” Paprocki said.

Private practices and hospitals are unlikely to provide disability coverage, Paprocki said, and cardiologists should not depend on the government or family members to provide resources in the event of disability.

Nearly all cardiologists will graduate with debt, Paprocki said. “The most effective game plan for debt, though not very exciting, is to simply live below your means,” Paprocki said. “That’s a very difficult concept to wrestle with because you’ve been deprived financially for so long.”

However, making higher than required loan payments can have a dramatic financial effect, Paprocki said.

“The earlier you start the more you can accumulate assets,” Paprocki said. – by Jeremy Moore