Why You Should Buy a Dental Practice BEFORE Your Student Loans are Paid Off

Brian Hanks General 1 Comment

“I am really interested in owning my own dental practice, but I think I need to pay down my student loans before I buy one.” said nearly every dental student and resident I’ve talked with across the country.

It’s a common response I get when talking with students. But it’s not a wise one.

If you’re coming out of dental school, you probably have a mountain of student loans. It feels daunting. And it only feels worse if you did a residency program. I get it.

You need to face your fears. Stare the cold, hard facts in the face. Realize the quickest way for you to pay down your student loans is to own a good dental practice as soon as possible.

Recently, a client of ours came out of dental school with just under $300,000 in student loans. He’s married, and has 3 kids. He worked for about 8 months as an associate, and then shopped and found a good practice to buy. Two years after that purchase, he’s whittled his student loan debt load down to about $80,000 and is on track to finish paying them off this year.

All his student loans paid off less than four years after dental school. Sound nice?

The fact is, the quickest way to pay down your student loans is to have the money to pay them down, and the quickest way to have the money is, typically, to own a good dental practice.

Let’s look at a simple example that helps illustrate the point. Let’s say you’re a new dental grad a year or two out of dental school and you’ve got the hand speed and skills to do $800,000 a year in production. If you’re an employee of a big chain, you’re probably taking home 25% of production, or $200,000. Good for you. Your Mom is proud, and your non-dental friends will make you pay for dinner.

Buy a Dental Practice Fast 1

What if you were the same dentist, but instead were an owner?

As an owner, let’s say you produce the same $800,000 in production and buy a practice that produces exactly that amount per year. Let’s assume you pay 65% of production for the practice, or $520,000. Now, instead of 25% of whatever you produce, you get to keep all the profits from the business. The average dental practice has overhead of about 60%, so you would get to keep about 40% as profit, or $320,000. But, don’t forget that you had to get a loan to buy the practice. Let’s say it was a 10-year loan at a 5% interest rate. That’s $66,185 annually that you’d need to pay towards that loan. But wait, if you subtract the loan amount from the profit you have left from the business, you have $253,815 – $53,815 more than you would have as an employee.

Buy a Dental Practice Fast 2

The real kicker comes down the road. After you’ve paid off the practice loan, you’re now keeping all the profit from the business. If you’re an employee, you’re still making 25% of production.

Buy a Dental Practice Fast 3

Of course, in real life the comparison is never quite as simple. There are other financial factors I haven’t mentioned, and plenty of non-financial factors not included in this analysis. Do you want control over which procedures you recommend? Do you want control over whom you work with? Do you want the added stress that comes with owning a business? Answers to those questions matter as much as the numbers. 

Even assuming ownership is still the goal, after I run students through the numbers I get two common questions:

“With as much as I have in student loans, no bank will lend to me!” Actually, banks can and frequently do lend to newer dentists with large student loan balances. Banks LOVE to lend to dentists. It’s true you’ll need to buy a dental practice that can support your student loan payments along with your living expenses at home. But make no mistake – the banks will run those numbers backwards and forwards. A good dental CPA with a Buyer Advocacy program like Practice Financial Group can run the cash flow projections for you as well. I’d be willing to bet good money that you, yes you (and your student loans), can get a practice loan.

“But I don’t have the experience yet to run my own dental practice!” That might be true. If you’re just graduating, you probably don’t have the experience you need yet. You need some day-in day-out time with patients to increase your speed and master your procedures. If you’re a year or two out of school, however, as long as you’ve been practicing dentistry, you know more than you think. And if you can show production history close to a practice you’re thinking of purchasing, there are advisors and consultants that can help you figure out what you don’t know.

The hidden danger with working at a big corporate dental chain right out of school as an employee is that you pick up bad habits. As an employee you’re more comfortable with an open schedule. You’re slower than your colleagues who own their own practice. You aren’t quite as good at selling the need for a procedure to your patient. Why would you be? The buck, ultimately, stops with someone else.

Working as an associate in an office similar (or the same!) as the one you might eventually buy is the best course of action right out of dental school. You get the experience you need, pick up the best habits of a business owner, and get an idea of how you will run your practice when you own it.

If you have a general idea of the pros and cons of business ownership, and you suspect that you will someday want to own your own practice – don’t wait until your student loans are paid off. The fastest way to pay off those pesky student loans, is to have the money to pay them off. And generally, the quickest way to have that money is to own a good dental practice sooner rather than later.

Brian HanksWhy You Should Buy a Dental Practice BEFORE Your Student Loans are Paid Off

4 Common Dental Practice Transition Mistakes and How to Avoid Them

Brian Hanks General 1 Comment

We’ve worked with a lot of clients to help them successfully transition to dental practice ownership. We’re proud of our track record with our clients, and the results of the good work we’ve done to ensure that both the buyer and seller are happy with the transition. We’ve seen, from time to time, a few common dental practice transition mistakes. If you, or someone you know, will ever buy a practice in the future, read through these four common dental practice transition mistakes and learn how to avoid them.

  1. Mistake #1 – Selling the Cow and Trying to Keep the Milk

An owner of a practice in Utah thought she was ready to sell. She was the third-generation owner of a practice where she was the main source of production, and her father (the previous owner) was the associate now working two days a week. The practice grossed over $1.3 Million in annual collections, and they were asking top dollar for the practice. Our client looked at the numbers with our help, and concluded that the price, while steep, was doable. The problem came when negotiations started. The seller wanted an 8-year guarantee that she would remain employed by the practice with a minimum guaranteed salary, and wanted her father to be contractually guaranteed his current job as associate. The deal never materialized. Clearly, the owner and her family wanted to cash out of the practice, while still being guaranteed an income stream from the business, whether or not the new owner could afford it.

Another orthodontist thought she was ready to sell. Her practice grossed just under $1 Million in collections a year with good profitability. This seller asked to be kept on the practice, under contract, for 10 years at a per diem of $1,750 a day for a minimum 120 days per year. Clearly the owner wasn’t ready to retire or let go. We never could figure out how the seller thought that others would think this was a good idea.

Interestingly, both doctors were “financially set” and could have afforded to sell and walk away. Emotionally, however, neither were ready to let go. Both made unreasonable demands that sank the deal. It’s not unreasonable for the seller to stick around for a little while after a practice sale. In most cases, a prior owner sticking around post-sale is actually preferable to help smooth the transition. The problem comes when “a little while” goes longer than a few months post-transition. Make sure the seller has something to retire “to” and not just retire “from.”

Questions a buyer can ask the seller to avoid a similar situation:

  • What are your plans after the sale? Do you want to continue to practice dentistry, and if yes, in what capacity?
  • Why do you want to retire?


  1. Mistake #2 – Seller Not Actually Ready to Sell

A seller in Washington State wanted to sell his practice, but had not reviewed his finances to see if he could afford to walk away from dentistry yet. The seller retained a broker, listed the practice, and our client became interested and engaged us. We helped the buyer perform due diligence on the practice, and the buyer flew out to the practice to look things over. The buyer put together an offer with our help and submitted it to the seller’s broker. After the broker and seller received the offer, the seller talked with his accountant and learned that even if he sold at that price, he would need to be on a “rice and beans” diet for the rest of his life if he wanted to retire right then. The seller backed out to considerable annoyance, wasted time and money of everyone else involved.

Questions a buyer can ask the seller to avoid a similar situation:

  • Have you talked with your financial advisor or CPA about whether or not you can afford to retire?


  1. Mistake #3 – Getting married without even having met – The partnership to bet against

Some sellers are savvy enough to know that they need a second set of hands to grow the practice, and finding a good associate is tougher than they imagined. They then think that they will sell half (or some other percentage) of the practice to a younger dentist, who will then become the partner and eventually buy them all the way out of the business. They then engage a broker and try and sell half the business to a doctor they’ve never met and worked with.

This is like an arranged marriage – getting married, never having dated. The results are predictable in a dental office.

One doctor, after having two associates come and go, decided that the solution was to have a part owner in the practice with him, not an associate. He decided he needed to sell part of his practice currently grossing $1.5 Million. He wasn’t ready to retire, and was proud of the business he’d built. He thought he be a great mentor to a new dentist. Having had two “bad” associate experiences (“bad” in this case being defined as, “They didn’t want to work the rest of their career at 35% of production and make me rich.”) wasn’t willing to try and work with another associate on an arrangement that would allow them to buy in at a later date. He wanted someone to buy in now. He met our client. They hit it off. They compared skills, and everything looked good. They discussed treatment philosophy, and couldn’t have been happier with the discussions. They talked about the future plans for the business, and thought they must have been identical twins separated at birth. So, they did the deal. Within 12 months, both doctors realized that they weren’t a “good fit.” The partnership ended in a bitter dispute. Patients left the practice. Employees left to find a more stable environment. The legal bills were huge.

The moral of the story? It’s almost never a good idea to enter into a long-term partnership without an acceptable associate term, which allow both parties the chance to work together, judge each other’s clinical and managerial abilities, as well as personality “fit.” There are myriad ways to work with attorneys to make sure both parties have skin in the game, as well as an “out” if an associate-to-own deal doesn’t work.

Questions a buyer can ask the seller to avoid a similar situation:

  • Have you had associates or partners in the past? Why haven’t they stayed?
  • If there were a way to have us both have incentives to make the deal work, would you be willing to delay the partnership sale slightly to ensure that our works styles and skills are a good fit?


  1. Saving a dime to pay a dollar later

A doctor was working with a potential associate to whom he intended to eventually sell the practice. The associate engaged us, and we recommended valuing the practice up front and working with legal counsel to draft an employment agreement so that everyone’s interests were protected. The seller worked hard to convince the buyer, our client, that “his word was his bond” and that they didn’t need to “waste” money on paying other people as long as they were both upfront, honest and open in their communications. Against our advice, the buyer agreed and began working as an associate without any formal agreement on buy out timing or price. A year later, when the buyer was ready to purchase, the seller starting having a few “changes of heart.” Conversations that the buyer was sure they’d had, were remembered differently by both parties. The seller suddenly wanted more money than they had originally agreed to. The buyer ultimately walked away, and bought another practice. Both the seller and buyer lost a year of their time, money and effort with nothing to show. All to save a few bucks on formalizing an agreement. Don’t save a dime now, to pay a dollar later.

Questions a buyer can ask the seller to avoid a similar situation:

  • Which firms have you engaged to help with this transition? How are they paid?
  • How can we be sure to protect ourselves and our interests, and ensure a smooth transition for patients and staff?
  • Will you have any issues if I engage my own CPA and lawyer to advise me through this deal?
Brian Hanks4 Common Dental Practice Transition Mistakes and How to Avoid Them

2 Methods Every Dentist Needs to Know to Value Their Practice

Brian Hanks General 1 Comment

Do you know the two most common ways to value a dental practice? If you’ve ever bought, or considering buying a dental practice, did you pay too much? How would you know? Does it even matter?

There is a secret to valuing your practice. Let me share what it is with a quick story.

I learned how business are REALLY valued in a finance class in my MBA program, and it wasn’t close to what I expected. At the time, I was in one of the most difficult finance classes I’d ever taken learning from the feet of one of the foremost finance professors in the world, Dr. Gautam Kaul. (In fact, if you want to take his valuation class, click here for the free online version! I warn you – it’s painful!) Week in and week out Dr. Kaul drilled us in the various methods of valuing a business – discounted cash flow, multiples method, comparable transactions, market valuation, sum of parts method, etc. We showed up each week with our models, and had them mercilessly torn apart by Professor Kaul. He had to be tough! He was training the next generation of Wall Street bankers. But, I was learning the “right” way to value a business. On the last day of class, I learned the secret of valuing a business.

“Put your textbooks away, now I’m going to share with you the secret of how this really works.” The secret, Professor Kaul told us, is that “Every valuation you do outside of class will be complete bull.” He continued, “In reality, you’re going to get hired by a client based on the fact that you’re selling them the story that you can get a buyer to pay more than any of the other brokers and bankers out there. You’re going to pick a number, and then you’re going to back into the model and assumptions that get you the number the client wanted to see in the first place. And the client will only be happy if they get that number.” He was saying that the valuation is completely made up!

Dental brokers are no different when they do valuations. If you’ve seen a valuation number for a dental practice, it is a series of assumptions piled on imperfect information. The seller hired that broker, in part, because the broker convinced them that they could get them the most for their dental practice.

So how do you know what a dental practice is really worth?

I’ll tell you the two methods that we use at PFG to see if clients are overpaying or not. We use two methods:

  • Price to Gross Revenue
  • Price to Earnings

I’ll explain what they mean, and how to think about them.Read More

Brian Hanks2 Methods Every Dentist Needs to Know to Value Their Practice

Why Investors Should HOPE the Market Goes Down

Nate Williams General, Investments Leave a Comment

Bring on the next recession!

The beginning of 2016 tested investors with the S&P 500 falling 10.51% in just over a month, hitting a low of 1,810.10 on February 11. Since that time, the US Market Index has pulled back, almost breaking even with the January 1, 2016 starting point of 2,043.94 with a closing price on March 16, 2016 of 2,027.22. At this point, most investors are wiping the sweat off their brow, breathing a sigh of relief and saying “that was close.”

During this volatile time period many of our clients called with concerns over the market decline. After recommending a new investing savings plan, one client texted me saying, “Looked at Schwab account last night…down $15,000…doesn’t make me want to jump into putting more money into stocks.”

My response was simple: “When the market falls you should be more excited to buy ownership of companies, not less excited!” Fortunately for him, and to his credit, he is a very coachable client. His response: “OK. Excited then.”

What about you? How do you feel when the market falls? If you’re like most people, your feelings are represented by this graph, with the grey line showing market prices:

Dentists Should Hope the Market Goes Down - Grey Line Graph

As a living human, it’s normal to have “feelings” of concern when the market falls. But are those feelings rational? And do they align with what you should do and feel?

Try this little exercise: Look at the graph below of the US Market (S&P 500) over the past 30 years. Let’s assume you had money to invest all along the way. When do you wish you would have invested your money?


Dentists Should Hope the Market Goes Down - Market History Graph

If you can do math and you’re not blind, you would have wanted to invest when the market is at its low points, right? As for me, I’m going all in on February 1, 2009!

But what were the vast majority of investors doing in Feb 2009? Including most professional money managers? They were running to cash, locking in losses forever!

Consider this quotes by the greatest investor of all time, Mr. Warren Buffett, in his 1997 letter to shareholders of Berkshire Hathaway:

“A short quiz: If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices? These questions, of course, answer themselves.

But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the “hamburgers” they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.”

So why does this happen – we get upset when the market falls, excited when the market climbs – time and again? We all know the drill, right? We all know that the market will ebb and flow; when it ebbs, again, why do we freak out? Why do we like paying more for burgers?!

I don’t know all the reasons for all people, but I think for most doctors the problem is centered around two key misunderstandings:

  1. Misunderstanding of what you own
  2. Misunderstanding of the plan

First, a misunderstanding of what you own. Here is a test: imagine you have a diversified portfolio of stocks (ownership of real companies) that was valued at $100,000 yesterday, but today the market tanks and the portfolio is now valued at only $80,000, how much have you lost? This is not a trick question. How much?

Most people will say $20,000, right? Well, those people are wrong. You haven’t lost anything. “Then it’s a trick,” you say. No, it’s not. Let’s assume in that portfolio you don’t hold any cash. Because cash is the commonly accepted method of trade, it’s the best and only way we have to show the current trading value of an asset. But it’s not the asset!

To be more specific, let’s assume you owned 1,000 shares of Apple stock, each valued at $100. And the next day the price per share drops to $80 – how much have you lost? Nothing. You still own 100 shares of Apple stock. Likewise, if the price increases to $120, what have you gained? Likewise, nothing. You only gain or lose money when you sell (you also gain when you earn interest or dividends that are reinvested).

The second problem, I think, is a misunderstanding of your real, long-term financial plan and the role that stocks play in that plan. Most doctors think the goal is to buy a bunch of stocks, hope the price goes up, and then sell them all on one magical day in retirement. This could happen, but for your sake I hope it doesn’t.

Don’t worry, most dental CPAs don’t get this point either. And neither do most investment advisors. So what is the plan?

Let’s pretend that you are a dentist in Phoenix, AZ, and that your financial plan is to buy as many single-family homes as possible during your working years (i.e. you buy “stock” in houses, read more here). After you buy the homes, your plan is to rent them out and one day you are going to stop practicing as a dentist and you’re going to live off the income from those properties. Got it? Now let me ask you a few questions:

  • What will the rental rates (r) be in Phoenix in the year 2045 when you retire? You have no idea – you do believe, however, that there will be people living in Phoenix and those people will need a place to live.
  • If you want to increase your income, what is the only guaranteed way to do that? Simple. Buy more houses. 2r is twice as much money as 1r, right?
  • If your goal is to buy more houses, what do you hope happens to the price of houses in Phoenix during your working and buying years?

The answer to the last question is simple: you want the real estate market in Phoenix to tank! Please, bring back 2008! Why? Because in that year the cost of homes in Phoenix went down by over 50%! And so you could buy two for the price of one, effectively doubling the quality of your retirement!

So what does this have to do with your plan? Everything. This is your plan (sub stock and bond mutual funds for single-family homes, which are actually horrible investments for doctors). Your financial plan (assuming you have one, and that it’s a good one), is not to buy a bunch of stocks and then sell them on some special day when you turn 60 or 65. Your plan is to buy as many shares of stocks and bonds as possible (via mutual funds), then to live off the income from those companies for as long as possible (dividends, interest, etc.).

And if that is the goal, and it is, and if you’re in the phase in life when you’re buying not selling, then you’d be smart to pray for a market crash and rejoice when it comes.

Or to quote Warren Buffett, “Smile when you read a headline that says ‘Investors lose as market falls.’ Edit it in your mind to ‘Disinvestors lose as market falls – but investors gain.’” (http://www.berkshirehathaway.com/letters/1997.html)

Nate WilliamsWhy Investors Should HOPE the Market Goes Down

Your Dental CPA Could Be Selling You Out!

Brian Hanks General Leave a Comment

Did you know that your advisors (e.g. CPA, attorney, consultant, etc.) are constantly getting offers to sell you out by referring products and/or services that may not be the best for you?

Check out part of this email we received from a web marketing guy who wants to show us his amazing SEO and traffic driving skills. His ultimate goal is to get us, at PFG, to refer our clients over to him. Watch how he phrases the offer:

I also wanted to reach out to see if any of your dental clients have any interest in a digital marketing campaign. I have been working with Dr. [redacted] for years now, and his SEO campaign has consistently brought new patients to his practice. If you’re able to connect me with any of your clients who want my support, I’d love to discuss a Finder’s Fee relationship with you for making the connection.

A “finder’s fee relationship?” That’s a polite way to say “we’ll pay you to tell your clients that we’re great.”

Another time a banker told us that in exchange for referring them clients, they would give us a “marketing allowance” in the amount of 1% of the amount of the loan. “Marketing allowance” is code for “kickback,” of course. This is the most common form of kickback we know of – banks giving “commissions” for people who refer them business. One banker, in trying to persuade us to take the money, told us that “we pay this fee to just about everybody who refers to us.”

There’s some good news and some bad news here. First, the bad news:

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Brian HanksYour Dental CPA Could Be Selling You Out!

What Return Will I Get On My Investments? (AKA “The Run/Pass Analogy”)

Nate Williams Investments Leave a Comment

When having discussions about investments with clients, there is one question we get more than any other…

What return will I get on my investments?

It’s a great question. In our long-term financial plans we have to use a long-term estimate of market returns, so in a way we’re forced to answer this question. As such, our clients sometimes expect us to know the answer. After all, you can walk to the bank and they tell you exactly what the interest rate will be on a CD or savings bond. Can’t you do the same thing with all investments?

Let us ask you a similar question: what exactly will the profits in your business be next year? And if we were investors in your business, what would be our exact return be? You don’t know for sure. In fact, you can’t know. Will there be a recession? Will all your patients disappear like so many doctor’s fear? Will you break your arm and be unable to perform your duties? Regardless, of the variables we simply can’t know what the return will be. Should that keep you or me from investing in your practice? No!


Returns since 1926

As you can see from the chart above, during the 90-year period from 1926 through 2015 the average annual return for Small stocks was 12.2%. Does this mean small stocks will gain 12.2% going forward? That would be nice, but don’t know. But aren’t we suggesting that we think they will? We hope so.

Let me share the perfect analogy to make this clear:

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Nate WilliamsWhat Return Will I Get On My Investments? (AKA “The Run/Pass Analogy”)

The Four Best Ways New Dentists Find a Practice to Buy

Brian Hanks General 1 Comment

In talking to young dentists all over the country, we get this question a lot: How can a New Dentists Find a Practice to Buy? Fortunately, the majority of dentists still understand the benefits of owning their own practice (far greater income and control/freedom over life and how you practice) and are courageous enough to take the plunge.

But how to find the right practice? And what if you can’t find the right practice quickly? Several of your friends from dental school had connections or family that helped them get started. Some of your other friends have mentors they’ve found that have helped. But for whatever reason, you’re coming up dry. Or you don’t know where to start. What to do?

Unfortunately there isn’t one easy answer. Finding a practice to buy is a lot like finding a spouse – you look and look and look, and then rely a little on luck. But the trick is that in order to find some luck, you have to look, and look hard.

To cut to the chase, here are some of the most common ways we’ve seen doctors successfully find practices to buy.

Dental Practice Transition Brokers – Most practices today are still sold through brokers. The process to buy a practice sold by these brokers is to 1) see the listing, perhaps on the broker’s website; 2) contact the broker; 3) perform due diligence on the practice (with the help of your financial team and attorney); 4) get a loan from the bank and buy the practice.

So the first thing to do here is to find several practice transition brokers who work in the region of the country you’re interested in and to contact them. To do that, we recommend a simple Google search, for example: “dental practice transition brokers texas.” Don’t forget to expand the geography of your web search beyond just a city to a state or region. And there’s no reason why you can’t be working with several brokers at a time.

Even if these brokers don’t have a practice listed that interests you, we still recommend you contact them and get on their mailing list for future opportunities. And finally, remember that brokers get paid by the seller. As friendly and as effective as many of them are, they ultimately work for the seller.

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Brian HanksThe Four Best Ways New Dentists Find a Practice to Buy

5 Investing Principles Every Dentist Should Know and Follow

Nate Williams Investments Leave a Comment

This post is the fourth in a series of five posts that lay out the PFG Investment Philosophy. This describes the five investing principles that every dentist should follow. Through these posts, we try and lay the foundation of knowledge around investments that clients should know, and answer the most commonly asked questions.

Having a sound, well-researched, time-tested investment philosophy is like having a game plan to use against your next opponent. Most investment advisors (to say nothing of investors) do not have a specific investment philosophy to use to face the future. Instead, most investors, as well as many so-called advisors, look at last year’s returns (or last 5 years, or whatever) to pick their current plan. Unfortunately, this “return chasing” is a great way to lose your money. Here is what this plan looks like graphically:

Typical investor buy sell pattern

(idea for image borrowed from Carl Richards, author of “The Behavior Gap,” a book we would highly recommend to anyone wanting to reach actual investment goals over time)


What’s your investment philosophy? At PFG, we follow 5 investing principles that every dentist should know.

We and our clients are the fortunate beneficiaries of decades’ worth of research, including several Nobel Prizes in finance and economics, used to create a sound, time-tested investment philosophy. Some of the key principles that drive our investment philosophy include:

  1. Markets are efficient. This means that all known information about a company is incorporated quickly enough to make guessing a money-losing proposition. Implication:
    1. We reject efforts to guess the next winners and losers (e.g. pick the next hot stock). Instead we want to own the entire market (like an index fund)
    2. We reject any form of market timing
    3. After fees, trading costs and extra taxes a passive investing strategy will outperform the majority of actively managed funds
  2. There is a direct relationship between risk and reward. The only way to expect a higher return (reward), is to take on an added measure of risk. When making investment decisions, we look at both sides of this equation. And when we want to increase return, we look to equities (stocks), not bonds. The graph below explains why.Returns since 1926
  3. Buy and Hold. We think this is the only rational, non-speculative way to invest. Instead of guessing and hoping that we can buy low and luckily sell high, our goal is to buy and own a share of the company’s profits for…ever.
  4. Diversify. This means more than randomly spreading things around. With diversification we’re trying to accomplish two things:
    1. Don’t put all your eggs in one basket
    2. Mix and match asset classes to give you the highest return for the appropriate amount of risk
  5. A tilt towards Small Cap, Value and Profitable stocks. These sub sectors of the overall market have proven to offer a higher return relative to the added measure of risk
    1. Small Cap – more risk because smaller companies fail easier, but the next Microsoft is currently a startup
    2. Value – these are “distressed” companies (like K-Mart, compared to Wal-Mart). Sometimes they don’t recover, but when they do there are big gains to be had.
    3. Profitability – no shocker here. The higher the level of profitability, the higher the return.

We don’t speculate with our client’s investments. We replace speculation with understanding and education.

Nate Williams5 Investing Principles Every Dentist Should Know and Follow

The Two Best Investments for Dentists

Nate Williams Investments 2 Comments

This post is the third in a series of five posts that lay out the PFG Investment Philosophy. This describes the two best investments for dentists. Through these posts, we try and lay the foundation of knowledge around investments that clients should know, and answer the most commonly asked questions.

What are the Best Investments for Dentists?

There are two.

First, Invest in Yourself and Your Business

We believe in this key principle of investing in yourself and your ability to earn a good living. We advise young dental school students to finish school; we advise recent grads to get a good job where they can further their skills and to look for a practice to buy or start; and we advise doctors who are in practice to reinvest back in their businesses in the form of advertising, new equipment and continuing education.

But you personally can only do so much. And very quickly (hopefully sooner than later), your ability to pay for self-improvement far exceeds your ability to implement the upgrades. At this point you need to start investing outside of yourself.

Second, Invest in Others’ Businesses – Through Stocks and Bonds

When you’re ready to look outside yourself and your business, we recommend you invest in the best businesses in the world. To do that there are only two ways possible: 1) buy ownership in the companies (stocks) or 2) loan money to them (bonds). And more specifically, to allow us a high level of diversification at a very low cost, we own and loan to these companies through mutual funds.

What’s at the heart of these investments? People and their ability to work and innovate. Regardless of which century we’re in, the country, political party in office, or whether we’re in a time of war or peace, productivity is the driver of all economic progress – human labor and innovation. Productive people organize together to form companies in order to convert labor and innovation into products and services that can be sold for a profit. We invest in those companies.

Investments We Advise Against

Because they are unproductive assets, we never invest in precious metals, commodities or raw land. If you buy a bar of gold, one hundred years from now it will be the same bar of gold having produced nothing in the meantime. The same is true for a bag of wheat or a piece of dirt. But a company will create much profit during that time. It is a productive asset.

We also advise against investing in activities that will take your time, or give you a second career. If you want a second career for the career’s sake, that’s a different story. But if you’re looking for an investment return only, we caution you to stay away from directly buying real estate, franchises, farming or other ventures that will take your time. Dentistry is a very profitable profession; the probability that your time will be more profitable somewhere else is very, very small.

In conclusion we strongly advise, once you’re ready to invest outside of yourself, that you invest in low cost, low turnover, highly diversified stock and bond mutual funds. Our favorites are these (here).

Nate WilliamsThe Two Best Investments for Dentists

Why Should Dentists Hire an Investment Advisor?

Nate Williams Investments 2 Comments

This post is the second in a series of five posts that lay out the PFG Investment Philosophy. This describes why dentists should hire an investment advisor. Through these posts, we try and lay the foundation of knowledge around investments that clients should know, and answer the most commonly asked questions.

Hiring an investment advisor is like a golfer hiring a caddie. Have you ever seen a pro golfer without one? No, and you never will. Why? What does the caddie do to earn their compensation? Like an investment advisor, they provide three key services:

  1. Administrative support (carry your bags). Your advisor should handle paperwork, trading, rebalancing, tax notices, etc. You should help make high-level decisions and do nothing else.
  2. Technical Expertise (they know the course). Your job is to make money as a dentist. Let your advisor be the expert on investing. It’s your advisor’s job to know the difference between mutual funds and ETFs, active versus passive funds, which fund family has the lowest expense ratios, and why avoiding 12b-1 fees is important. You time is better spent becoming a better dentist than learning that miscellany.
  3. Behavioral support (make sure you don’t blow it). This is the most important thing a good advisor will do for you! The key to winning in golf is not to hit the most birdies, but to hit the fewest bogies. This is also true with investing; a good advisor can help you stay the course when it gets tough to do so…and the going will get tough!

Sadly, people’s investments perform very poorly when they don’t have an advisor. Consider the following data, prepared by DALBAR, that tracks how the markets perform, and how the actual investors in that market perform.

Dalbar Study

Using our golf analogy, the dark colored bars show the average investment returns (e.g. 9.9% for the S&P 500, we’ll call this “par”) compared to the actual returns earned by real people (5.2%, call this a “bogie”). What this chart is telling us is that to earn a 9.9% return, all an investor would have had to do was invest, then go to sleep for 20 years. Rip Van Winkle would have made a killing! Unfortunately, it also tells us that, after inflation investors’ mistakes and lack of experience in stocks barely made 3% on their money. And those poor bond investors actually LOST money after inflation!


Dalbar Study with Scribbles


Why then did these investors underperform their actual investments? They bought at the wrong times, sold at the wrong times, chased last year’s winners, dumped last year’s losers, etc. Your advisor has to stand in the way of you and yourself! When you pull out the driver and want to go for a hole in one, a good advisor will talk you off that ledge and suggest instead the much safer par option. The same advisor will also not let you use your putter on the fairway!

Nate WilliamsWhy Should Dentists Hire an Investment Advisor?