Retiring and going to med school... What to invest in and when to pull the trigger?

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banker22
Posts: 110
Joined: Mon Aug 03, 2015 1:17 pm

Retiring and going to med school... What to invest in and when to pull the trigger?

Post by banker22 »

Hi all

I have been a long time browser of this board and I own (and have read most of) the book. I am 29 years old, recently married, and work as an investment banker in London. My goal is to 'retire' in 2 years to go back to medical school to retrain as a doctor. I got in to medical school a few years ago but decided against it, and have always regretted the decision. If I won 100m right now I would go to med school. This, essentially, is my retirement plan.

I make great money (around £130k-160k per year and increasing exponentially each year) but live in a very expensive city. I estimate I would need around £16k per year to support myself (not including tuition). My wife works and makes good money so this would help, but I'm assuming she will make just enough to support herself. There are definitely synergies here that we should be exploiting...and my goal is for us both to live off of her salary for the next 2 years, while saving all of mine. This should result in £170-200k saved.

I currently have the following debt:

- £40k undergraduate debt at 2.5%
- £20k credit card debt at 15-20%

Medical school will cost around 9k per year and living will cost 16k (not including interest/principal payments on my student loans). So max price would be 25k per year times 4 or 5...so let's say 125k Obviously there are scholarships and also low interest loans I could take out to cover a lot of this. The minimum (if I took out all loans to cover as much as possible) would be 55k.

There are two ends of the spectrum with how I'm planning to save / invest, and the correct answer probably lies somewhere in the middle.

One end (what my family advises and I certainly see the merits of):

Save everything in cash essentially, earning just enough interest to keep up with inflation. Maybe some lower risk investments like fixed income, some equities but probably not given current state of market. Be totally secure throughout medical school, and finish debt free. Pay off my current student loan also and obviously my credit cards asap. Would still be left with 30-50k cash to either invest or buy a house to live in. Incredibly safe...and I would finish school with no debt. But wouldnt really set me up for retirement down the line.

Other end (what is naturally more my tendency, although I can see merit to both sides):

Keep my current student loans as they are at a low rate. Take out maximum new student loans at low rate. Save 30-50k cash buffer but invest the rest in real estate. I've been speaking to lots of US turnkey providers and am visiting one while in the US next week. I could put in 120-150k and generate 10-12% cash on cash conservatively, or around about my living costs. This hopefully would go up over time, and by later in life would be a nice extra income (and fully paid off). Would also take a lot of pressure off of me as I would always have another income stream...a big weight off of my shoulders. Also worth noting that docs in this country make nowhere near as much as US, although haven't ruled out a move back to US for residency (am a US citizen). However... If/when there is another crash, rents could drop, cash flow could dry up, could foreclose. Banks could sue me personally for the difference between the mortgage and the foreclosure value... Wouldn't be fun during med school. Also getting calls from property manager about the boiler at 4am...etc. How much did rents fall during the crisis though? I know not at all in some regions. With the current deal I'm looking at, rent would have to drop 30% for me to break even in cash flow terms. However, between the old loans, new loans, and mortgages I would have a hell of a lot of debt.

I guess option 3 is work another 1-2 years and start school 3-4 years from now. By then I could've saved 450k but am starting school at 33...and the thought of waiting that long is depressing...but I could do it. What's another 1-2 years if it means financial security forever? That said, doctors still make good money here: 80-150k+ when fully qualified 'attendings'...so will never be poor. By this time, equity markets will likely have crashed again and I can comfortably pile a lot of the cash into an index fund. Or depressed real estate or whatever. However, I am currently working 5-10 hours per week volunteering and doing med school research in addition to working 70hrs ... Not sure I can keep this up for 3-4 more years. And my wife would rather we do it in 2 years...but this is likely flexible. Am I being selfish / stupid here? I'm sure most people would take that deal any day...ie 3-4 more years to have saved £400k and be able to retire forever. So what if i start med school at 33...still young in the scheme of things. Theres also the question of getting into med school at this age...but i think that will be fine.

Would be good to hear anyone's thoughts. Sorry if this is a bit jumbled - I am writing on my phone as don't want this to be saved on my work computer ! I will probably edit later when I get home.

vexed87
Posts: 1521
Joined: Fri Feb 20, 2015 8:02 am
Location: Yorkshire, UK

Re: Retiring and going to med school... What to invest in and when to pull the trigger?

Post by vexed87 »

Personally, I would be wary of assuming that rental prices will stay the same. London is experiencing a bit of a bubble due to foreign investment, which will dry up during the next bust. How much the rental markets will plummet depends very much on the economic impacts of the future recession/depression and it would only be speculation to say one way or the other. One thing is for sure is that rental/house prices fall to match what people are willing to pay and not much more/less.

I personally would opt with #3, get that debt gone before leaving work... I was under the impression junior doctor's didn't make much more than £35 for the first few years of service, unless you are prepared to reduce your savings during that period, I would stick with work for a few more years... that is unless what you are doing at the moment is soul destroying! Money isn't everything, it would be more important that I enjoyed every day to the max (according to ERE principles, not reckless YOLO!).

Also, is there a chance you are looking a a career in medicine through rose tinted glasses? The grass isn't always greener, and medicine is notorious for being hard work. My worry is you will be kicking yourself for not being FI before taking the leap. There will be plenty of time to study once you don't have to worry about the bills/repayments.

banker22
Posts: 110
Joined: Mon Aug 03, 2015 1:17 pm

Re: Retiring and going to med school... What to invest in and when to pull the trigger?

Post by banker22 »

vexed87 wrote:Personally, I would be wary of assuming that rental prices will stay the same. London is experiencing a bit of a bubble due to foreign investment, which will dry up during the next bust. How much the rental markets will plummet depends very much on the economic impacts of the future recession/depression and it would only be speculation to say one way or the other. One thing is for sure is that rental/house prices fall to match what people are willing to pay and not much more/less.
Thanks for your long, considered response. This forum is great!

I am looking at rental properties in the US, by the way. Not that that changes macroeconomics...but I agree London is a massive bubble and I think there are parts of the US where property is still undervalued vs. historical means.

banker22
Posts: 110
Joined: Mon Aug 03, 2015 1:17 pm

Re: Retiring and going to med school... What to invest in and when to pull the trigger?

Post by banker22 »

vexed87 wrote: I personally would opt with #3, get that debt gone before leaving work... I was under the impression junior doctor's didn't make much more than £35 for the first few years of service, unless you are prepared to reduce your savings during that period, I would stick with work for a few more years... that is unless what you are doing at the moment is soul destroying! Money isn't everything, it would be more important that I enjoyed every day to the max (according to ERE principles, not reckless YOLO!).

Also, is there a chance you are looking a a career in medicine through rose tinted glasses? The grass isn't always greener, and medicine is notorious for being hard work. My worry is you will be kicking yourself for not being FI before taking the leap. There will be plenty of time to study once you don't have to worry about the bills/repayments.
Junior doctors start on like 25! So yeah hence the appeal of option 2 and 3. I don't mind what I'm doing now.

There is definitely a chance that I am looking through rose coloured glasses. But I've spent hundreds of hours volunteering in hospitals, shadowing doctors, conducting medical research, etc and took a load of science courses in university...so I know what I'm getting myself in for. I'm sure hospital work can get you down after a while. In fact one of the reasons I want to achieve FI before I train is I want to have the freedom to volunteer in the developing world as a doctor, up to several weeks / months per year.

What do you recommend investing in at the moment? Or keeping my cash as cash for now? Seems that value investing and picking 20 stocks may be the way to do things, and my financial background may help me with this.

Again, thank you so much.

banker22
Posts: 110
Joined: Mon Aug 03, 2015 1:17 pm

Re: Retiring and going to med school... What to invest in and when to pull the trigger?

Post by banker22 »

I see you're also UK based. How do you invest in the most tax efficient manner? Through an ISA?

vexed87
Posts: 1521
Joined: Fri Feb 20, 2015 8:02 am
Location: Yorkshire, UK

Re: Retiring and going to med school... What to invest in and when to pull the trigger?

Post by vexed87 »

Yes definitely utilise your ISA allowance as dividends and increases in share value are exempt from capital gains tax. Monevator recommends SIPP wrappers for those who are able to max out their allowances, but I don’t know enough about them to recommend them at this stage. Maybe worth looking into?

I’m not actually investing at the moment as I’m saving for a house deposit so I’m hoarding cash in my current account at 2%. I couldn't risk my deposit shares, if I lose 50% of my capital in the next bust it will take a long time for it to recover. Losses in 2008 took 5 years to recover! What you do with your investment largely depends on your short and long term plans. I would be wary of holding cash longer than a few years, as you stand to lose substantial buying power to inflation, particularly if quantitative easing picks up during the next bust.

If I was investing at the moment I would be wary of total equity index funds at the moment as I think the markets are ripe for a correction (recently hitting all-time highs, etc).

I’m a big fan of value investing, like you I will stick to about 20 securities to diversify my share holdings but will combine that with Harry Browne’s permanent portfolio strategy.

25% Cash,
25% Shares (as above),
25% AAA Gilts
25% Gold

Check out the permanent portfolio strategy, it seems robust.

banker22
Posts: 110
Joined: Mon Aug 03, 2015 1:17 pm

Re: Retiring and going to med school... What to invest in and when to pull the trigger?

Post by banker22 »

I've just ordered a book on it. Thank you!

Ydobon
Posts: 412
Joined: Fri Aug 29, 2014 9:15 am
Location: Scotland

Re: Retiring and going to med school... What to invest in and when to pull the trigger?

Post by Ydobon »

A couple of considerations.

New student loans at low rates? Currently 5.5% as far as I can see, that's no longer cheap.

10-12% 'conservatively' with a turnkey provider in the US? That sounds like total BS to me. I can't believe that there's a sufficient supply of super profitable rentals in the US that allow a provider to make a profit and deliver 10-12% profit to their customers. If something sounds too good to be true...

If you could reliably make 10-12% year in, year out, would you share it with others, or would you exploit every fundraising avenue that you could to keep the profit for yourself (leveraged debt etc.)? It makes me wonder why these turnkey providers can't turn to mainstream finance providers. Actually it doesn't, I'm assuming that these are typically subprime properties, and we all know that nobody has ever experienced difficulty selling/letting/managing those ;)

Maybe worth further research?

banker22
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Joined: Mon Aug 03, 2015 1:17 pm

Re: Retiring and going to med school... What to invest in and when to pull the trigger?

Post by banker22 »

Current student loan rates are 1.5%. Where are you seeing 5.5%?

Yes, 10% conservatively. I don't this is "too good to be true" at all:

- Equities have shown a nominal return of around 10% over the long term (since 1900)
- Real estate is a leveraged investment, coming with higher risk /return
- Real estate is much less liquid than equities

Ydobon
Posts: 412
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Location: Scotland

Re: Retiring and going to med school... What to invest in and when to pull the trigger?

Post by Ydobon »

Plan 1 student loans are at 1.5%, new loans would not be, they are now more akin to commercial loans in terms of cost.

The historical return on US equities may be c. 10%, but I believe that's before costs and it included some of the greatest periods of economic expansion that ever took place (and a bunch of wars and recessions). I look around these days and the pace of development and human ingenuity definitely doesn't fill me with confidence that the next 100 years will be as good for investors.

What did you decide when you went to visit one of the providers?

banker22
Posts: 110
Joined: Mon Aug 03, 2015 1:17 pm

Re: Retiring and going to med school... What to invest in and when to pull the trigger?

Post by banker22 »

I am going to visit one of the companies next week in Dallas. Will let you know.

You are right re: student loan rates. Crazy. I definitely don't want to take any of those on!

What's your view on my options above?

NPV
Posts: 188
Joined: Fri Dec 06, 2013 9:41 am

Re: Retiring and going to med school... What to invest in and when to pull the trigger?

Post by NPV »

This is not necessarily my advice to you (no two people are the same), but out of these I would have chosen option 3 any day. Assuming you are healthy, you can have ~40+ active years ahead to do what you like, what's two-three more to reach FI? With the road you are taking, chances are, this option will never again be as readily available to you as now (in the sense that your earning potential will be lower once you abandon the IB track). And given you "don't mind" your current work, this to me would be a no brainer.

Mr.Moai
Posts: 14
Joined: Sun May 12, 2013 1:18 pm

Re: Retiring and going to med school... What to invest in and when to pull the trigger?

Post by Mr.Moai »

Personally, I would repay the debt and focus on achieving financial independence asap. As for the med school, once you're FIRE, you can move to another country where tuition is lower or free while providing decent education. Having EU citizenship would obviously help, but even as US citizen you can pay very low tuition at certain institutions in France, Germany or Nordic countries. Depending on your status in the UK you could even go to Scotland to establish a residence and then you'll pay the Scotland/EU tuition of about 2k/year. Living expenses would be much lower in Scotland as well so you could pretty much graduate debt free.

As for US turnkey real estate investments I would recommend to stay away. If you however wish to diversify into real estate, then buy a house around your med school and turn it into HMO for other medical students. This way you can live rent free and if you play it right even earn something on the side. However make sure to investigate Article 4 direction in relation to HMO as many councils are cracking down on HMOs in university towns.

banker22
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Re: Retiring and going to med school... What to invest in and when to pull the trigger?

Post by banker22 »

Great advice, thanks.

I am UK citizen also. 4 year med school here costs 9k for year 1 and 5k for years 2-4, so pretty good. I am pretty sure German and Nordic med schools are in local language, or this would be a great option.

banker22
Posts: 110
Joined: Mon Aug 03, 2015 1:17 pm

Re: Retiring and going to med school... What to invest in and when to pull the trigger?

Post by banker22 »

What do you recommend investing in? What does your portfolio look like?

Mr.Moai
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Re: Retiring and going to med school... What to invest in and when to pull the trigger?

Post by Mr.Moai »

Yes, language could be a problem as it would take you about a year to learn to sufficient level if starting from scratch. I would seriously investigate a possibility of establishing a residence in Scotland and then study there for 2k/year. Both, Edinburgh and Glasgow universities are among the top in the UK for medicine and very competitive worldwide.

In terms of my portfolio, I prefer 50/50 split between equities and real estate investments. Equities are in ISA and taxable accounts split roughly 50/50 between index funds and individual dividend stocks.

Ydobon
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Re: Retiring and going to med school... What to invest in and when to pull the trigger?

Post by Ydobon »

Depending on your status in the UK you could even go to Scotland to establish a residence and then you'll pay the Scotland/EU tuition of about 2k/year. Living expenses would be much lower in Scotland as well so you could pretty much graduate debt free.
From what I can see, OP would need to be resident in Scotland for a year before applying. Living expenses are definitely lower than London, but living in a city with a decent university is not substantially cheaper than living elsewhere in the UK (said as a former student of one of the universities mentioned) :)

banker22
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Re: Retiring and going to med school... What to invest in and when to pull the trigger?

Post by banker22 »

Being resident would only save £16-26k total. Worth a year chilling in Scotland? Maybe not!

banker22
Posts: 110
Joined: Mon Aug 03, 2015 1:17 pm

Re: Retiring and going to med school... What to invest in and when to pull the trigger?

Post by banker22 »

Mr.Moai wrote:Yes, language could be a problem as it would take you about a year to learn to sufficient level if starting from scratch. I would seriously investigate a possibility of establishing a residence in Scotland and then study there for 2k/year. Both, Edinburgh and Glasgow universities are among the top in the UK for medicine and very competitive worldwide.

In terms of my portfolio, I prefer 50/50 split between equities and real estate investments. Equities are in ISA and taxable accounts split roughly 50/50 between index funds and individual dividend stocks.
Who do you have your ISA with? I'm in the process of setting one up now. And who is your taxable account with? After ISA, is there any other tax-efficient way to invest? How about spread betting?

Mr.Moai
Posts: 14
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Re: Retiring and going to med school... What to invest in and when to pull the trigger?

Post by Mr.Moai »

Ydobon wrote: From what I can see, OP would need to be resident in Scotland for a year before applying. Living expenses are definitely lower than London, but living in a city with a decent university is not substantially cheaper than living elsewhere in the UK (said as a former student of one of the universities mentioned) :)
I agree, it probably comes down to mainly rent which will provide significant savings compared to London. Don't forget that OP was enquiring about real estate investing, which he could afford to do in Scotland via HMO and live there at the same time. That's not really possible/sustainable in London at the moment with OP's budget.
banker22 wrote:Being resident would only save £16-26k total. Worth a year chilling in Scotland? Maybe not!
Wouldn't that be only tuition fee? Don't forget that you could invest into HMO property and even be cash flow positive while living rent free for the duration of your med school. Unless you have some serious deposit you can't do that in London.
banker22 wrote:Who do you have your ISA with? I'm in the process of setting one up now. And who is your taxable account with? After ISA, is there any other tax-efficient way to invest? How about spread betting?
I like TD Direct Investing for ISA and Interactive Brokers for taxable account. I don't do any spread betting or other clever things. I like to keep it simple and mostly passive.

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