Investing Your Money While in Medical School

So you’ve worked hard at your part-time job during undergrad – or maybe you’ve taken some time off to work at a “real job” – and now you have what seems like more money than you know what to do with. In reality, perhaps, it’s not much – but you’ve never had this kind of money before. So what to do with it? Invest it, you say? That’s an easy way to make a buck, right?

But how the heck do you do that?

Well, for starters, before you ever come close to purchasing your first mutual fund or opening up an IRA, stop. Stop and think about the big picture. You have successfully saved up a few grand. Perhaps you’ve worked really hard and have $15,000 or so and are feeling quite good about yourself. Or maybe you have even more.  That’s great. It really is an accomplishment, but that doesn’t mean it’s time to go find the best and brightest stock picks and start wheeling and dealing.

First, if you are about to start the medical school application process, you have a lot of costs ahead of you. Your AMCAS application, secondaries, a suit, airline tickets, taxis, food, hotels – all of these things cost money. Quite a chunk of change, actually. If you’ve made it through the process, awesome – but don’t forget you probably have to move to medical school. Moving is expensive. You’ll probably have to buy new furniture, put down a security deposit, and perhaps even your first month’s rent – all before your loan money arrives in your bank account. Once all that is taken care of, what if your car breaks down? What if you trip, fall, break your ankle, have terrible insurance, and get slammed with a huge medical bill? What if [insert unlikely but costly scenario here]? Obviously – hopefully – none of those things will happen. But it’s smart to be prepared. Which leads me to the first step you should take with your grand riches – allocate some of it to an emergency fund.

An emergency fund is for…umm…emergencies. You probably guessed that. But not the “Oh darn, I really need that cool new computer/car/video game/whatever” kind. More like the, “Oh darn, my car just gave up on life and now I need a new one” or “Oh darn, something bad happened and now I need to support myself from my savings for a few months.” It’s generally recommended that you have enough money in your emergency fund such that, if needed, you could support yourself for about 3-6 months. Once you build it up, you put it in your savings account (or higher-interest online savings account, such as Ally Bank, or perhaps put two-thirds of it in a CD ladder with reasonable early-withdrawal penalties) and leave it there until it’s needed. If Mr. Murphy strikes and finds you with your pants down (or at least without an adequate emergency fund), that could be financially catastrophic for you.

In addition to having a solid emergency fund that you can fall back on to cover unforeseen expenses, you should also have a handle on your budget. Live below your means. It’s often said that it’s best to live like a student now so you can live like a doctor later, instead of the opposite scenario. That doesn’t mean you will be eating Top Ramen for the majority of the next decade, but it does mean that you should be financially wise with your resources. Figure out your emergency fund, figure out how much you can spend each month to stretch your loan money for the year, factor in rent and utilities, figure out how to cut costs in certain areas if needed, and don’t spend more than your monthly allowance. It’s really not all that difficult to figure out. The hard part is sticking to it.

Ok, you say. I’ve done all that. I’ve got a great emergency fund, I’ve developed a picture-perfect budget spreadsheet in Excel, and I follow it to the letter. I’ve got money left over, and I still want to invest. Now what?

The first step is learning about the world of investing. I’ve posted before about some resources that you could read to learn a bit, but I’ve reposted some relevant links below for your convenience, and added a few new resources.

The White Coat Investor

This is a great resource for medical students and residents in particular, but also for anyone interested in investing. It is written by an emergency medicine physician, and has a lot of great info about all sorts of things. I would highly recommend reading all of the articles linked in his “First-Timers!” section from top to bottom.

The Motley Fool

What is the difference between a Roth IRA and a traditional IRA? What’s a 529? How do mutual funds work? The answers to these questions and more can be found here. I recommend reading at least through all of the articles under the tabs “How to Invest” and “Retirement” to get a general idea of what’s going on. One word of caution: This site offers a lot of great free content, but has to make money somehow. This often comes in the form of “hot stock tips” newsletters and what not. Ignore these.

The Bogleheads' Wiki and The Bogleheads' Forum

Don’t be thrown off by the strange-sounding name – this wiki and the associated forum are one of the one of the best resources online for learning about investing and finance. Spend some time here – it will serve you well in the future. If you have any questions, ask away in the “Help with Personal Investments” subforum – you can get answers within minutes from many wise individuals, including those who have authored some of the most common-sense investment books available today.

Morningstar.com’s Investing Classroom

If you really want to learn the nitty-gritty details about stocks, mutual funds, bonds, etc., this is the place to go. It takes some time – I’m still not done yet – but going through their free classes is an excellent way to learn some of the finer points of investing.

In addition to the above websites, I recommend getting your hands on some quality books.

The Bogleheads’ Guide to Investing

This is an excellent starter book that outlines a basic philosophy of investing that I believe will serve any reader who is in it for the long haul very well. I highly recommend getting your hands on a copy of this book and reading it. Once you are done here, you might want to grab a copy of their next book…

The Bogleheads’ Guide to Retirement Planning

This excellent work details the various nuances of planning for retirement, including the various kinds of vehicles you can use to stock away tax-advantaged cash. Honestly, if you read the above links you’ll probably get a pretty good handle on most of the basics, but you might want to consider adding this one to your collection at some point. That said, I do highly recommend their Guide to Investing. 

Some general main points of the sources above are summarized below:

Avoid Individual Stocks

You are not an expert stock-picker, and the market is smarter than you are. You can’t beat it consistently. No one does. But if you try to time the market, you will underperform it. And you will likely do that fairly consistently.

If You Can’t Beat ‘Em, Join ‘Em

Why limit yourself to a few poorly-chosen stocks? Why not just buy them all? This is where index funds come in. These are mutual funds that attempt to replicate a market index, such as the S&P 500 – a fund that is composed of stocks of many of the larger companies in the U.S. You can take that even further and buy an index fund such as the Vanguard Total Stock Market Index Fund, an index fund that essentially covers the entire spectrum of the domestic market – big companies, small companies, and everything in between. If you buy this fund, you are essentially buying over 3500 different stocks. Try doing that on your own. Round out your portfolio with funds like the Vanguard Total International Stock Index Fund and the Vanguard Total Bond Market Index Fund. Do that, and you’ll essentially own the entire market.

The beauty of low cost index funds is that, over time, you will get at least market returns. Actively managed funds (mutual funds that are essentially run by a single manager or group of managers) try to beat the market by buying and selling certain funds according to where he/she/they think the market is going. Which might sound good in theory. But in reality, in any given year, actively managed funds underperform the market over two-thirds of the time. Of course, that means that one-third of actively managed funds are beating the market. That’s great, but those funds are changing every year, and there’s no way to know who will be the next winners – or losers. Investing is not a game of winning and losing, though – it’s a game of not losing. By getting at least market returns, you are guaranteed to not lose.

Determine Your Asset Allocation

Your asset allocation (AA) is essentially how much of your money you put in different areas of the market. For example, you will have to decide how much money you will invest in, say a Total Stock Market index fund versus a Total Bond Market Index Fund. A good general rule of thumb here is that your 110 minus your age equals your equity (or stock) allocation. So, a 30 year old investor might invest 80% of his money set aside for investing into stocks via index funds and the remaining 20% in fixed-income securities, perhaps via a Total Bond Market index fund. It’s generally recommended to have at least some type of fixed income allocation. Over time, this acts as a hedge against market downturns and can even increase your overall returns as stocks might go one direction and bonds in another in varying market environments.

An easy way to choose and maintain your asset allocation while also investing your money wisely (especially if you could care less and would rather have a hands-off approach) is to simply buy a Target Retirement fund, such as the ones that Vanguard offers here, or a LifeStrategy Fund, which can be found here. These funds invest in all of the funds I mentioned above, thereby allowing to you cover the entire market in one fell swoop that you never have to think about again, if you don’t want to.

Invest for the Long Term

Investing your money in the market comes with a certain degree of risk – namely, at certain times, you might actually lose money. But the general trend of the market is up, and if you keep your head on straight and don’t sell your investments in a panic (thereby locking in your losses), you will, over time, regain your lost money and then some. All that takes time, though. Don’t invest any money in the stock market that you will need in the next 7-10 years. Short-term goals are better suited to CDs and high-interest (relatively speaking…) savings accounts.

Now what?

So how do you buy these funds? I won’t go into too much detail here about the different ways you can invest (e.g. via Roth IRA, Traditional IRA, 401(k), 403(b), taxable accounts, etc. – that’s what the above resources are for!) except to say that, for someone just entering medical school, the best investment option (if indeed it is appropriate to invest in the first place) is probably via a Roth IRA. Think of a Roth IRA (or any of the vehicles mentioned above) as a bucket in which you hold various types of investments, such as stocks, bonds, etc. A Roth IRA is not an investment in of itself. Each different bucket has different benefits. In this case, you contribute to a Roth IRA with post-tax money, but all of the money you earn within that “bucket” will be available to you in retirement tax-free. Additionally, the money that you contributed can be withdrawn without penalty, which may prove helpful in a time of extreme need.

The catch, of course, is that you need earned income to be able to qualify for contributions to a Roth IRA. That means that if you haven’t earned at least as much money as you plan you contribute in the past tax year, you are out of luck. But don’t let that stop you. Spend time now pouring over the resources above and learning about all of this now. Becoming familiar with sound investing principles now will pay off in a huge way later. Good luck to you in your journey, and feel free to post any questions you might have in the comments section below.

How to Spend the Summer before Medical School

(Hint: Don’t pre-study.)

(Seriously.)

So, you’ve made it into medical school. And’s it’s summer. No more required resume-building activities, no more endless hours staring at a lecturer droning on and on about something you’ll never need after passing the next test, no more….oh, wait. I guess there’s more of that to come.

But not just yet. For now, the day is yours. So how should you spend it?

Don’t pre-study.

Listen. I get it. We’re all premeds, and by definition, we are generally all highly neurotic. We don’t really think we need to know all there is to know before medical school, we just want to “be prepared” or “be ready to jump in” when school rolls around – especially if we’ve been out for a little while. So why not just casually glance through Rohen’s or perhaps start reading Bate’s Guide to Physical Examination & History Taking while falling asleep? Can’t hurt, right?

Well, perhaps not. But when you actually have to read those books later, you’ll be kicking yourself for not taking advantage of your free time when you had the chance. Take the advice of multiple medical students, residents, and attendings who echo the repeated refrain: Don’t pre-study.

So, now that that required intro is out of the way, what should you do with your now-plentiful (hopefully!) free time? For some of us, we still need to work. Money, as your mother might have taught you, doesn’t grow on trees (but if you do find a money seed, please contact me). You’re still living, which means you need to live somewhere, eat, and pay for transportation to get to and from wherever you're going. That said, you likely worked during school, and you’ll quickly find that coming home from work to a bunch of homework is entirely different than simply working and coming home to significantly fewer responsibilities. As a bonus, your free days are often actually free, rather than periods of catch-up studying for the next exam or what-have-you. Ah, the glory…

So what to do? A couple things. For starters, while it’s generally a bad idea to pre-study, most of us are excited for what’s to come and want to do something related to medical school. So perhaps you could spend some time figuring out how you are going to study. Consider your past study habits and how they’ve worked for you, and then consider the format of your upcoming classes and consider how your habits might translate or need to be changed. Are you a book learner? Do you do best drawing things out? Studying in a group? Going to lecture? Some combination of the above? Peg your learning style now, so that you can begin studying efficiently when school starts in a few weeks.

For example: I like to solo-study. I don’t exactly like studying in a group, but I don’t mind it – as long as I’ve gone over the material at least once and have a general grasp of it. I can then use the time to help others learn it, which has the double-whammy bonus of 1) helping them and 2) reinforcing the material for me. But generally, I’m a bit of a loner in that regard.

Also, I like flash cards. I used them frequently in undergrad and while studying for the MCAT with great success. For material that I want to have down cold, these are my go-to tool. But they are a pain to make and store, and I now have a bunch of old flashcards that I’ll never look at again but I just can’t bring myself to throw away…

Solution? While perusing the internet, I came across a link to a blog by user who goes by the name of Dr.Willbe. In this post, he provides a great overview of some relevant first year tips, one of which involves using a spaced-repetition program called Anki. He goes into further detail about the program here, and since he’s done such a great job of distilling it into an understandable post, I’ll refer you there for further information if you’re curious (Update: I've written more about Anki here). Anki isn’t for everyone, and there are other options (like Gunner Training or the new-and-improved Firecracker) for those who want flashcards but don’t want to make them.

Also, during undergrad, I largely took notes by hand. I personally didn’t own a laptop until the last semester of my senior year, and then only bought one for medical school. After using it to take notes for a couple of extra-credit guest lectures (those are always nice…), I had a hard time going back to hand-writing my notes for my regular classes. It doesn’t help that my hand writing could easily be confused with the marks a chicken would make on the ground if it were to accidentally step in wet paint. So it was a no-brainer that I’ll be using a laptop for notes in medical school. The question then became exactly how I would go about it? Microsoft Word (or Pages, for you Mac users)? That would work….but then I discovered OneNote. Perfect. An easy, flexible way to take notes and access them anywhere.

Of course, figuring all this out certainly didn’t take the whole summer. What else can you do? Obviously, spending time with friends and family is important. For many of us, we will be moving away and even if we aren’t, we will be much busier than we are now, thus potentially reducing the amount of quality time we can spend with loved ones. If you are married, talk with your spouse about this now and be sure that all parties know what’s about to happen. But at the same time, just because you are in medical school doesn’t mean you get to ignore everyone – especially your spouse. Decide now that, while you will strive to do well, you will have boundaries and accept that there will be days where you won’t be able to study as much as you might like because it’s now time to be done and go spend time with your loved ones.

Another thing you can do during the summer is to adopt a hobby or learn about something new. Personally, for example, I had always been somewhat curious about investing, finance, and all that that entailed but never really sat down and learned about it. That’s changed this summer—I’ve had a great time reading books, online resources, and various forums about investing, and have learned a ton (but of course, I still have much to learn). In fact, I’ll probably be posting about relevant issues for medical students and residents in the years to come. This is one of those things that is better to learn sooner than later.

For those who are interested, here are a few places to get started (Update: I've written more about this topic too, which can be found here):

The White Coat Investor

This is a great resource for medical students and residents in particular, but also for anyone interested in investing. It is written by an emergency medicine physician, and has a lot of great info about all sorts of things. I would highly recommend reading all of the articles linked in his “First-Timers!” section from top to bottom.

The Motley Fool

What is the difference between a Roth IRA and a traditional IRA? What’s a 529? How do mutual funds work? The answers to these questions and more can be found here. I recommend reading at least through all of the articles under the tabs “How to Invest” and “Retirement” to get a general idea of what’s going on. One word of caution: This site offers a lot of great free content, but has to make money somehow. This often comes in the form of “hot stock tips” newsletters and what not. Ignore these.

The Bogleheads Wiki and The Bogleheads Forum

Don’t be thrown off by the strange-sounding name – this wiki and the associated forum are one of the one of the best resources online for learning about investing and finance. Spend some time here – it will serve you well in the future. If you have any questions, ask away in the “Help with Personal Investments” subforum – you can get answers within minutes from many wise individuals, including those who have authored some of the most common-sense investment books available today.

Morningstar.com’s Investing Classroom

If you really want to learn the nitty-gritty details about stocks, mutual funds, bonds, etc., this is the place to go. It takes some time – I’m still not done yet – but going through their free classes is an excellent way to learn some of the finer points of investing.

So there you have it—a number of free, easy ways to learn about investing. Again, this is one of those things that will serve you well if you get a handle on it sooner than later.

In sum, there are a number of ways to spend your summer. Above all, though, be sure to spend time doing things you enjoy with those you love – that’s definitely something that you won’t regret later.