Hi! I'm a physician, and I'm trying to earn a 2% monthly ROI. I opeate a "concierge medical practice", and I charge each of my patients a retainer of $3000/year. I currently have 600 patients, so I'm earning $150,000/month. I'm thinking of living on only $20,000 of that, and putting the rest in the care of a financial manager. I want to have a comfortable retirement and something to pass on to my kids. I plan on retiring by age 70. I'm currently 38. I'd like to earn a 2% monthly ROI by using stocks, bonds, real estate, precious metals, and derivatives. Any idea how I could do this? Thanks!!!!!
There is no way that I know to "invest" money to get that type of return. There are businesses one can start that might yield such a return, or may fail. Current market forecasts suggest a 10 yr horizen will return 8-10%/yr, and any manager who guarantees you more than that is as likely to lose your money instead of meet these goals. By the way, why do you think you need such a return? Saving $80k/mo at 8% per year return and you will have, ahem, $192 million at age 70. You'd be in a position to spend $8M/yr, more than twice an inflation adjusted final income of about $3M, of which you'd have only lived on a small fraction, anyway. With such a high saving rate, there's no need to go into high risk investments. JOE JoeTaxpayer.com
I think it's a safe bet that one or more health insurance laws will be passed in the next 30 years that will significantly change your business model. Not to mention the naturally declining health of your client base as they age...
Your gross revenue may be $150K/month, but don't you have any expenses? Don't you have to pay some taxes on your profit? (Although interestingly, it seems this type of practice is largely found in Seattle and Florida, two areas with no state income tax).
A quick internet search of "concierge medical practice" shows that your story is much more the exception than the rule. So, not only is 2% monthly ROI unrealistic in any case, but your own income projections should allow for a lot of volatility.
A 20% annual Return On Equity in Real Estate is no big deal. If you put down 20%, break even cash flow and have a leverage of 5 and get a
4% appreciation you are there. The relentless 3% inflation works in your favor for rent increases. This is a lot of paperwork and keeping track of rent checks and HOA fees. I suggest you marry a real estate agent/property manager/accountant who can qualify as a Real Estate Professional. Ask that nice lady with the Indian accent the next time you call tech support :) You won't be limited to the $25,000 maximum loss per year against ordinary income. You've got lot's of income. You could leverage some properties really big now, get a big deduction now and get the income in the form of low tax long term capital gains later. You want to push your income to later years as part of your strategy anyway. Wifey will end up earning more money than you.
So you'll have $130,000 a month to invest? Is that minus all expenses associated with your medical practice?
Right now a safe return is 5% annually. Anything above that will mean some risks. Long term average for a diversified stocks and bonds portfolio is about 10% annually. So 2% monthly will be significantly higher than that. Is it possible? Yes it is. You need to discuss this with several fee based investment pros, who'll likely charge you about 1% annually for managing your investments. As to real estates, again it's possible to build wealth from that. But it requires hands on management. You need to devote your time to your medical practice, not managing your real estates.
First, 20% doesn't get to the OP's goal. Second, you make it sound a lot easier than it is. Third, this rate of return is only sustainable if you continually refinance and keep your leverage (and risk) high, otherwise your return drops rapidly over time.
All good points. My mistake, I should have put the appreciation at
4.8%. Anything upto 6.5% appreciation is reasonable (33% return on downpayment). Yes, it does take work and isn't "easy". I'm impressed by your point about sustainability. The first year return doesn't compound automatically and does drop off. Unless you continually leverage as you state. Many people miss that.
The OPs real problem is his tax bracket. As if 33% federal isn't bad enough, he's in the 35% bracket. If he uses his income to make mortgage payments the interest is deductible, even if he has massive negative cash flow (that's the reason for the Real Estate Professional status). So if interest payments now which would otherwise be taxed at 35% federal this year turn into long term capital gains tax deferred for
10 or 15 years, that is a big win.
Back in the good old Clinton days I was in the 38.6% federal (marginal) bracket, 9.3% (CA) state tax and 2% (or so) Medicare tax bracket (again on the the last dollar I earned). Yes, that's a hair under 50%. Unless I buy something and pay 7.75% state sales tax :) Don't even ask if I bought a gallon of gas with additional taxes. In real estate you can set your taxable income to be about whatever you want depending on how much deductible interest you pay and depreciation you take. His large income and low expenses really make this planning feasible. Good work. Employees don't have that luxury. CPAs and spreadsheets are your friends.
Actually, I'm also thinking of moving all my assets and investments to an offshore trust in the Cook Islands. Would that remove or reduce my taxes?
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Yeah, my expenses are about $15K/month, so this leaves me w/ $20K/ month to live on and $125K/month to invest.
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The MIFP archives provide numerous cites that support a contention that what's reasonable for real estate is closer to 1-2% appreciation.
The last few years are an aberration; a bubble. It's bursting in many parts of the country, and people's home investments are actually showing a negative return.
IMO safe investing demands attention to long term historical trends as a means of getting some handle on how markets work and what could happen.
Your expectations are unrealistic, but you are definitely on the right track in two ways. First, you are planning to live on considerably less than you earn in a month, and that is good. Second, you are planning to diversify among several kinds of investments instead of putting all your eggs in one basket, and that too is wise. If I were you, I would forget about trying to earn 2% monthly. I would waste no time seeking exotic tax shelters, and stick with the two good ideas mentioned above. If you search for super deals, you will most likely waste a lot of time for nothing, and what is worse be vulnerable to scams that promise 25% a year or such, possible only in extremely risky investments where you could lose a lot.
OK, what about earning 0.75% monthly? Investing $130K/month at that ROI for 20 years, I'll have $86,825,293.09. I'll withdraw $10MM to up my living status, then I'll reinvest it at the same rate. So by age
70, I'll have a nest egg of $225,316,044.70. I plan on reinvesting my dividends, interest payments, and rent until the 20 year period is up.
I do plan on seeking asset protection in Switzerland through either a trust or a corporation sole, which I'll transfer all my assets to. I know a couple lawyers who have have done their LLM theses in this subject, so when I go to Switzerland to open up my Swiss bank account and set up the trust or corporation sole, I'll bring them along.
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