Six more financial actions to take during the COVID-19 crisis
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Our last column addressed steps orthopedists should consider to shield their finances during the COVID-19 crisis, such as focusing on liquidity and cash reserves and communicating often with one’s financial advisor.
We continue this theme and discuss six more actions orthopedic surgeons should take.
Focus: Long term – macroeconomics
One of the topic we encourage orthopedists to discuss with their trusted financial advisors is the history of the U.S. stock market and economy. Looking at 100-plus years of data can help nervous investors reduce stress when seeing previous serious shocks to the system, such as during the World Wars, Great Recession, etc., and the subsequent recoveries. Doing this can help orthopedists apply the wisdom “this too shall pass” to the financial arena.
Focus: Long term – microeconomics
Perhaps more valuable than reviewing long-term macroeconomic history with your financial advisor is re-examining your personal or microeconomic long-term future. This means reviewing your long-term financial model with assumptions that reflect our new reality — ideally, through adjustable, iterative software where variables can be altered and best/medium/worst cases saved for future review. Orthopedists who are years away from retirement may see that even the short-term financial pain of today will have a relatively minor impact on their long-term plans, a realization that can be burden-relieving.
Another benefit of looking at one’s personal planning model is to re-focus on cash reserves and personal spending. In good times (ie, the last decade), many physicians, including orthopedists, lost some focus on both personal spending and maintaining a sufficient “rainy day fund.” Times likes these can lead to an appropriate re-focusing on these two key elements of financial modeling.
Tactical investment changes
In the short term, there may be tactical investment changes to implement during this crisis. For some, this will simply mean rebalancing asset class allocations to their long-term strategic percentages. For example, an investor with a long-term strategic model of 70% stocks and 30% bonds and alternatives might see those percentages move significantly from those benchmarks during a stock downturn, especially if stocks lose value when bonds and alternatives remain steady or gain in value. Simply rebalancing back to the 70/30 split would require some trading, even if the client and advisor agreed nothing should change for the long-term model.
For individuals who need cash to maintain their practices or pay bills, securities may need to be sold regardless of, or in addition to, rebalancing. Determining the assets to liquidate and how to minimize tax implications is important in these instances.
Finally, many investors may make no changes to their portfolios. In all three cases, of course, orthopedists should be driven by rational decision-making, ideally with the assistance of a professional advisor.
Ensure advisor acts in your interest
As we explained previously, understanding the distinction between a financial advisor operating under a fiduciary or suitability standard is crucial. However, many experienced orthopedists do not comprehend this distinction. One set of investment advisors operates under a professional standard that requires them to make suitable recommendations to their clients without having to place their interests below that of the client. A key distinction in terms of loyalty is also important in that this type of advisor’s duty is to the firm he or she works for, not necessarily the client.
Another set of investment advisors operates under the fiduciary standard. They have a fiduciary duty to their clients and a fundamental obligation to provide suitable investment advice and always act in their clients’ best interests.
There is no better time than during this crisis to understand how one’s advisors make money and to whom they owe their duty.
Protect against other risks
In the COVID-19 pandemic, we are primarily focused on its impact on health care, practice and personal financial risks. For those who can do so, this can be a good time to focus on protecting against other risks, as well. We see physicians re-examining their insurances, from disability and life insurance to long-term care coverages for themselves or family members. Others are addressing the legal planning they have put off, including asset protection and estate planning.
We encourage orthopedists to use any downtime they have during this crisis productively. For many surgeons, elective surgeries have been banned outright for a period. Some practices have closed. Others are seeing a significantly reduced caseload. For these reasons, including lack of travel, conferences and children’s activities, many orthopedists have more free time than ever in their careers.
We encourage you to spend some of this time focusing on the actions described herein. Use the time to get educated on financial matters that are on your to-do list. There is a great deal of free education available. At some point, we will all go back to busier schedules. Our future selves will thank us if we took items off the to-do list when we had downtime.
- Reference:
- Wealth Protection Planning for Orthopaedic Surgeons and the newly published Wealth Planning for the Modern Physician: Residency to Retirement are available free in print or by e-book download by texting OT20 to 555-888 or at www.ojmbookstore.com. Enter code OT20 at checkout.
- For more information:
- Sanjeev Bhatia, MD, is an orthopedic sports medicine surgeon at Northwestern Medicine in Warrenville, Illinois. He can be reached at email: sanjeevbhatia1@gmail.com.
- David B. Mandell, JD, MBA, is an attorney and founder of the wealth management firm OJM Group www.ojmgroup.com. You should seek professional tax and legal advice before implementing any strategy discussed herein. He can be reached at mandell@ojmgroup.com or 877-656-4362.
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Wealth Protection Planning for Orthopaedic Surgeons and the newly published Wealth Planning for the Modern Physician: Residency to Retirement are available free in print or by e-book download by texting OT20 to 555-888 or at www.ojmbookstore.com. Enter code OT20 at checkout.
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