Ultimate magazine theme for WordPress.

Financial lessons from the COVID-19 pandemic

Choose a section

Investments

August 12, 2021

Read for 5 minutes

Source / information

Published by:

Source:

Disclosure:
Bhatia and Mandell do not report any relevant financial information. Bhatia and Mandell do not report any relevant financial information.

ADD SUBJECT TO EMAIL ALERTS

Receive an email when new articles are published on

Please enter your email address to receive an email when new articles are published on . “data-action =” subscribe “> subscribe

We could not process your request. Please try again later. If this problem persists, please contact [email protected]

Back to Healio

With over 150 million Americans vaccinated against COVID-19 here by the summer of 2021, with sports being played in crowded arenas, and many activities almost back to normal, we believe a column is needed on financial lessons that can be drawn from the pandemic.

While we hope not to endure such an event again in our lifetime, there are some important lessons from the pandemic that can guide us in times of relative normalcy.

Sanjeev Bhatia

Sanjeev Bhatia

David B. Mandell

David B. Mandell

As you review these lessons, take a minute to remember the uncertainty, stress, and (for many) panic that set in in the spring of 2020 as US COVID deaths skyrocketed and financial markets collapsed .

Lesson 1: Contact the finance quarterback

This lesson can be phrased differently: Don’t go it alone. Making important financial decisions in times of great uncertainty and even panic is difficult. This is even more true if you don’t have a professional advisor to work with in making decisions. Many doctors have a financial expert on their counseling team, and those who did so in 2020 are likely to have benefited significantly from it.

First, the professional advisor should have provided a sounding board – someone who can execute your ideas and take a break from some of the more emotional elements of investment and wealth planning that overwhelmed many investors in March and April 2020. Ideally, a doctor is selected. A consultant is also someone who is observant, disciplined, data-driven, and guided by longer-term planning.

For many investors making their own decisions, spring 2020 was a time to sell assets and switch to cash out of fear. This strategy often proved to be a double blow against them: (1) they paid capital gains taxes on sales as many stocks were relative to their base even during March market lows if they had been held for a year or more, and (2) many have never felt right to “come back in”. As a result, these investors missed the jump to new highs later in 2020. Unfortunately, for doctors who recognize this as their story, it may take years to recoup the losses and lost profits in 2020.

On the flip side, we are starting to see data showing that a significant number of investors who have worked with a professional advisor (and certainly many who have not) did not panic in Spring 2020. In fact, they either stood still and didn’t sell, or they bought their way into the downturn and came out with even bigger profits in 2020.

Lesson 2: step back, review your plan

In Lesson 1 we discussed macroeconomics – what happened to the financial markets. Here, in lesson two, we look at the microeconomics, which involves an orthopedic surgeon’s specific financial plan. This is a good time to take a step back and review your long-term financial plan.

One of the most effective ways to avoid bad financial decisions in the short term during stressful times is to keep long-term planning goals in mind. Importantly, this should include a review of a long-term financial / retirement model, including annual savings targets, assumed returns, and benchmarks for personal expenses and retirement.

By reviewing and understanding what goes into their financial plan, a doctor can really invest in a long term time horizon. Additionally, they can look at short-term financial downturns with perspective and not allow these downturns to create stress or lead to bad decisions, even in a chaotic and scary time, as it certainly was the start of the pandemic.

Lesson 3: Be Proactive About Taxes

Since everyone wants to cut their taxes as much as possible, it is not surprising that most doctors find Lesson 3 important always, and not just in times of crisis. Additionally, this lesson may be especially important in the next few years when the proposed tax increases go into effect.

A detailed look at all types of tax cut tactics is beyond the scope of this article. However, one tactic that turned out to be timely in 2020 was to generate capital gains and generate losses. Many consultants, including David’s law firm, helped clients capitalize on the sharp market slump in March 2020 and enjoy the rest of the year ahead of the curve. This was accomplished by selling pre-identified holdings during the downturn in the market in order to realize significant tax losses and reinvest the proceeds in pre-identified similar assets to match the client’s overall allocation.

Before the pandemic, many doctors, especially those who manage their own investments, may have thought that generating losses and gains should be done in the fourth quarter, understanding which elements of the portfolio are rising or falling for the year and the doctor overall tax picture for the calendar year is clear. This is a mistake. One of the lessons we learned from 2020 was that an investor who waits until the fourth quarter to make profits and losses is going to miss out on a tremendous opportunity to enjoy large tax shortfalls while investments soar. The opportunity to enjoy this “win-win” came and went in March 2020.

Lesson 4: Find a Fiduciary Advisor

Coupled with the extreme market volatility in Spring 2020, most doctors had more time due to the mandatory discontinuation of non-emergency procedures. Some used this time to review their investment portfolios, reevaluate their existing advisory relationships, or perhaps find a new financial advisor. In this effort, physicians had a significant opportunity to understand the various types of financial advisor making money and to see the value of a fiduciary financial advisor.

In short, there are two regulatory models for investment advisors – the escrow standard and the suitability standard, which we discussed in this column. Fiduciary advisors must put the interests of their clients before their own, while an advisor working according to aptitude standard only has to offer the client suitable investment opportunities. The fiduciary advisor owes his client and the suitability advisor to his broker-dealer a fiduciary duty.

Trust model

For many doctors evaluating financial advice options, the trustee model made the most sense. This is not surprising, because doctors also have a professional duty to put the well-being of their patients first. With doctors returning to their busy pre-pandemic schedules, working with a trustee should be a priority when evaluating current or potential counselors.

graduation

In addition to health concerns, many doctors had significant financial concerns during the COVID-19 pandemic. In our view, in 2021 we examined four proven financial lessons that gained new meaning during the pandemic and will continue to influence doctors’ wealth planning in the future.

References:

Asset planning for the modern doctor and asset management made easy are available free of charge in printed form or as an e-book download via SMS to HEALIO at 844-418-1212 or at www.ojmbookstore.com. Enter the code HEALIO at the checkout.

For more informations:

Sanjeev Bhatia, MD, is an orthopedic sports physician with Northwestern Medicine in Warrenville, Illinois. He can be reached by email: [email protected]

David B. Mandell, JD, MBA, is a lawyer and founder of the asset management company OJM Group www.ojmgroup.com. You should seek professional tax and legal advice before implementing any of the strategies discussed here. He can be reached at [email protected] or 877-656-4362.

Relation:

Wealth Planning for the Modern Physician: Residency to Retirement is available free of charge in print or as an e-book download via SMS to HEALIO at 844-418-1212 or at www.ojmbookstore.com. Enter the code HEALIO at the checkout.

For more informations:

Sanjeev Bhatia, MD, is an orthopedic sports physician with Northwestern Medicine in Warrenville, Illinois. He can be reached by email: [email protected]

David B. Mandell, JD, MBA, is a lawyer and founder of the asset management company OJM Group, www.ojmgroup.com. He can be reached at [email protected] or (877) 656-4362. You should seek professional tax and legal advice before implementing any of the strategies discussed here.

ADD SUBJECT TO EMAIL ALERTS

Receive an email when new articles are published on

Please enter your email address to receive an email when new articles are published on . “data-action =” subscribe “> subscribe

We could not process your request. Please try again later. If this problem persists, please contact [email protected]

Back to Healio

Residence until retirement

Residence until retirement

Comments are closed.