The Money Meets Medicine Podcast

Lower Investing Fees Through Financial Literacy

By Jimmy Turner, MD
Host of Money Meets Medicine

I remember my first deep dive into investments as if it were yesterday. I was a clinical instructor and during the HR presentation, someone put a 403B form in front of me and I had no idea what to do. Prospectus?  Expense Ratio?  Index Funds?  What are these investing fees and how do I lower those investing fees?

I had no idea where to start. I found investing to be filled with complex terms, seemingly endless choices, and those pesky investment fees lurking around every corner.

But don’t worry; we’ve got this! Because I’ve been in your shoes, trudging through jargon-filled finance articles late at night after long hospital shifts. It’s not fun when all you want is to grow that hard-earned money effectively without losing half of it to hidden investing fees or bad decisions.

Table Of Contents:

The Impact of Financial Literacy on Investment Fees

There’s a strong correlation between financial literacy and investment fees. Knowing what’s going on with investing can help you avoid being charged too much, just like when getting your car serviced. A solid understanding of financial concepts is like having GPS for your investing journey. It helps steer clear of costly detours or dead ends.

This isn’t just hearsay. FINRA, a major regulator in the US finance industry, found that folks who scored higher on their financial literacy quiz paid lower investment fees. Now that’s smart money. Better grasp of finances doesn’t just keep your wallet happy – it gives peace of mind too. Imagine not being bamboozled by complex fee structures because you understand them.All it takes is a bit of financial literacy.

It turns out the correlation between investing success and financial literacy has been shown among physicians-in-training, too.  Dr. Fahd Ahmad, a pediatric emergency medicine doc (and author of Rogue Dad MD), published a personal finance study in 2017 called “An assessment of residents’ and fellows’personal finance literacy: an unmet medicaleducation need.”

In Ahmad’s study, 45% of the residents and fellows didn’t know that risk was tied to reward when it comes to investing. Another 55% didn’t know that 529 plans were designed to save for college education.

The point? Financial literacy impacts your ability to successfully invest. Keeping investing fees down is just a part of that.

The Misconception of Self-Rated Investment Knowledge

Sometimes, we think we know more than we actually do – kind of like thinking singing along perfectly with our favorite song means we’re ready for The Voice auditions. Or how something like 80% of drivers think they are better than average.  Most of us overrate our ability.  It is called the Dunning-Kruger effect.  Below is an adapted Duning-Kruger curve from my book Determined: How Burned Out Doctors Can Thrive in a Broken Medical System. It has been adapted from the original Duning-Kruger curve to the express the typical journey of the physician through medical education.

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In a nutshell, with more experience comes more confidence. Yet, if you don’t have enough experience, this becomes overconfidence, which peeks at what is known affectionally as “Mount Stupid.”  At Mount Stupid, mistakes are made until you bottom out as a doc who suffers from imposter syndrome.

The same can be said when it comes to personal finance.  An inflated self-confidence might lead us down an expensive path, which turns into a costly mistake when it comes to higher investment fees. As per FINRA’s findings, individuals who rated their knowledge about investing higher (despite actually knowing less) paid higher fees — quite the paradoxical tune compared to expected savings.

When you don’t know what you don’t know, you are likely cresting Mount Stupid, and even more likely to do worse when it comes to investing. Overconfidence bias, as psychologists call this phenomenon, blinds us from recognizing our limitations, leading us towards costlier decisions.

Bear this mind: The road less traveled by investors doesn’t always lead to an untapped gold mine – sometimes there are good reasons why it’s less traveled.

The Role of Professional Financial Advice

As a doctor, your expertise lies in healing and saving lives. That’s why many doctors would benefit from professional financial advice.

Now, you may be asking, which docs need financial advice?  Well, I break doctors down into one of three groups:

  1.  The DIY money nerds – this group wants to handle all of their investments themselves. They’ve likely read multiple books on investing, financial planning, and definitely listen to the Money Meets Medicine podcast.
  2. The Dot the i’s and Cross the t’s group – this group knows a good bit about personal finance but they want to make sure they aren’t at the peek of Mount Stupid. So, they want a professional to help them make sure they are dotting the i’s and crossing the t’s. They have also read a book or two, maybe even The Physician Philosopher’s Guide to Personal Finance in order to learn the 20% of personal finance they need to get 80% of the results.
  3.  The Outsource Group – this group treats investing just like their lawncare, childcare, or dry cleaning. They outsource it to someone else to handle for them. Their financial literacy is quite low.

Different Strokes for Different Folks

While Group 1 likely doesn’t need a financial advisor, Group 2 and Group 3 would definitely benefit from financial advice.  Particularly Group 3 because they are the most likely to know the least about investing and to experience the highest fees.

According to FINRA, folks scoring higher on a financial literacy quiz paid significantly lesser fees – indicating the power of informed decision-making.

Ultimately, you have two choices to increase your financial literacy and your chances of investing success. Educate yourself.  Read some books like The Physician Philosopher’s Guide to Personal Finance (a free copy can be downloaded on MoneyMeetsMedicine.com ). Listen to some podcasts. Read some blog posts… and/or enlist the help of a fee-only financial planner.

The Importance of Ongoing Financial Education

Money Meets Medicine, Jimmy Turner, Justin Harvey

 

Just like medicine, finance is a field that never stops evolving. That’s why continuous learning in personal finance and investing matters so much.

Keeping Up with Financial Trends and Developments

Staying abreast of current financial trends and developments is essential for making informed investment decisions. From understanding market volatility to tracking changes in interest rates or tax laws, keeping up-to-date can help you adjust your strategy accordingly.

Imagine if you stopped reading medical journals after med school – it wouldn’t work out well for your patients. The same goes for managing your money: without ongoing education, you could miss out on opportunities or fail to protect yourself against risks.

Understanding the Language of Finance

A crucial part of this lifelong learning process involves mastering financial jargon. If words like ‘diversification’, ‘ETFs’ or ‘capital gains’ sound Greek to you, don’t worry – they did to all us at one point.

You don’t have to be fluent overnight; even getting comfortable with a few key terms each month can drastically improve how confidently and effectively manage investments over time. It’s similar learning about different diseases when becoming a doctor – nobody expects anyone know everything from day one but little by little we build our knowledge base become better practitioners…or investors case may be.

 

Conclusion

In short: Investing doesn’t need to be scary or costly for doctors like yourself – armed with some solid financial education (and perhaps some professional guidance), it’s completely doable without breaking the bank.

Financial literacy matters. It helps you make informed decisions, and yes, it lowers investing fees too.

The takeaway here is that confidence isn’t always competence. Just because you think you know a lot about investments doesn’t mean those investment fees will automatically drop.

Obtaining expert counsel can be transformative. Especially for doctors juggling demanding schedules – it’s all about personalized strategies to get your money working hard while keeping costs low.

Above all else, keep learning. The financial world changes fast and staying updated means more control over your investments – remember this in the journey of investing for doctors, lowering investment fees, and enhancing financial literacy.

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