A Tale of Two Doctors

The purpose of this blog post is to share wealth accumulation path (and lifestyles) of two exceptional PFG clients, who have been almost identical in every way but one: how they have invested their money.

The financial plan we outline for our clients is simple and is summarized like this:

1. Become the best clinician you possibly can be, doing the work well and fast
2. Learn to make money with your clinical skills, which includes:
   1. Own your practice (this should be intuitive, but apparently is not based on the current “sell to a DSO” craze). Nevertheless, the wealthiest doctors are ALWAYS practice owners.
   2. Learn to sell your dentistry (not “oversell,” but to communicate quality treatment plans clearly and confidently)
   3. Learn to lead your team
3. Once you start making money, determine an appropriate level of personal spending that balances present fun with future freedom
4. Religiously follow the cash surplus plan we give you, which will include:
   1. Invest in your practice as needed to be able to increase your production capacity to an appropriate “pace”
   2. Pay off your debts
   3. Max IRA contributions for you and your spouse, investing in low-cost equity mutual funds (or ETFs, the best way to own businesses that you don’t manage)
   4. Max 401(k) contributions for you and your spouse, investing in low-cost equity mutual funds.
   5. Invest the rest of your money in a taxable investment account where you own low-cost equity mutual funds
   6. Do all of the above until you retire
5. Do not:
   1. Get divorced
   2. Let your spending balloon to consume all your surplus
   3. Invest in ventures outside of your practice that take any of your time, attention, or energy; such as real estate*, dental assisting schools, franchises, etc.

*We do advocate owning your home, sometimes your building, and investing in REITs that require ZERO management!

At PFG we have been blessed with exceptional clients. Amazing clinicians, high income earners, and even better people. But not all our clients follow the simple program outlined above. Whenever a client deviates from this path, we know immediately that his or her future net worth will be reduced and the complexity of his or her life will be higher. Are we palm readers? No, but we’ve seen this movie over and over again, and the ending is always the same.

The data below is not exaggerated or embellished; check it out and then you decide, which of these two doctors do you want to model?

I am going to name these two Dr. S (for Simple) and Dr. C (for Complex).  Let me share what they have accomplished, financially, over the 10-year period beginning 2013:

Let me point out a few things about Dr. Simple:

• He paid off his debts (home and student loans) quickly while working as an associate. He and his wife lived frugally to get this done. They have never since taken on another debt.
• His family still lives in the same home. It is a nice home, but no “dream home” in comparison to his income and net worth.
• His practice is profitable but has not grown a lot. The average annual growth rate for this period is only 3.6%; this is less than inflation over the same period! To become our wealthiest client, he has simply been consistent.
• 100% of his investments are held at Schwab in publicly traded equity mutual funds that require zero management from him. Zero time; zero energy; zero attention given (other than our annual meeting where we review them together).
• In 2023, we estimated that the stocks he owns generated $687,099 of passive income ($206,130 of dividends + $480,970 of projected retained earnings).
• He works 3.5 clinical days per week.
• He coaches several of his kids in sports.
• If he stopped investing now and earned the historic market average of 10% on his money, he’d have over $56 million at age 65!
• He does not own his building.
• When he goes to a dinner party and they’re talking about investments, he tells me he feels embarrassed because he doesn’t know a lot about investments. I tell him to just say, “let’s share our account balances.”
• He does know a lot about running his practice, and about being a husband and father. He also serves as a volunteer in his church.
• They drive modest cars.
• His family does travel extensively. They prioritize experiences.
• He can quit working anytime. But he’s still going.

Now, I’d like to introduce Dr. Complex and tell you more about him. First, his financial results:

As you can see, their earnings are almost identical, with Dr. Complex earning just 3% more than Dr. Simple during this time.

• Their net worth has grown similarly; Dr. Simple’s net worth is just $573,552 more than Dr. Complex in 2023.
• Complex has only $1.36 million of “traditional” invested assets (equity mutual funds); the rest of his assets are held in real estate, which he manages.
• He has started and runs a separate real estate management business, which is dedicated exclusively to managing his own RE portfolio (which has included up to 10 single family homes and now holds several large commercial buildings). In the past 7 years there have been 4 different people managing this portfolio (high turnover, which causes everything to fall back to him).
• He made two massive investments in 2022 and 2023, significantly increasing his debt load. His dental practice subsidizes the debt for these commercial buildings.
• He promises me that these two new buildings will make him rich and allow him to retire. I hope he’s right.
• He works over 60 hours per week and constantly stresses over what he needs to manage.
• He and his wife have hired a nanny to take care of their kids, as they both work full-time in demanding jobs.
• Retirement isn’t anywhere in sight; if he were to stop now, his debt load would sink him.
• The massive dip in income in 2020 was due to him being given a second practice location, which he took and started running (another doctor actually walked away and handed him the keys). After this second location started dragging him down, he walked away from it too.
• His practice income started dropping in 2018, which is most likely due to him being distracted by outside ventures. This is impossible to quantify, just my hunch.

Both doctors have been equally proficient at saving and investing their money. How they have invested their money though is what distinguishes them.

You Be the Judge

Which of these two doctors would you rather be? Which balance sheet would you rather have? Which of their lifestyles would you rather have?

The path we lay out for our clients is simple. But it is not easy to follow. And why is it not easy?

When you’re a highly productive, high-energy, extremely proactive doctor, it is VERY difficult to follow such a simple and boring plan. But as I’ve said many times before, the simple and boring Tortoise who follows the financial plan always beats the complex and exciting Hare. Every time.