Although not viewed as an investment, insurance is an integral part of financial planning. It is also one that many physicians ignore. One of the most overlooked types of insurance is disability. In addition to any policy available from an employer or practice, you should have personal coverage that follows you from one employer to another.
Explore This IssueJuly 2019
Life insurance is another often overlooked product. Especially for physicians with families, making sure you have enough life insurance to cover lost income for many years and provide for your children’s education is crucial. “Having a solid insurance plan is critical,” said Dr. Dahle. “Some of the worst financial catastrophes I have seen are when a physician becomes disabled or dies early in life. If you are the main breadwinner, you need adequate coverage for both situations.”
After funding retirement accounts to the maximum and getting your insurance needs in order, the next step is deciding what to do with the money. “You need to have a written plan early in your career,” said Dr. Dahle. “It explains how you are going to invest over the rest of your life. It forces you to consider what are good long-term investments and then stick with them.”
The best way to think about investing is that there are two components: One is protecting yourself using investments to shield from liability; the other is to increase your wealth. —Cynthia Chen, MD
Mutual Funds and Exchange-Traded Funds Are Solid Options
Utley and Dr. Dahle are both proponents of using mutual funds (MF) or exchange-traded funds (ETF). These are investment vehicles in which people invest money with a professional manager. This person, in turn, buys and sells securities for the group. Both have the advantage of easy diversification among many stocks or bonds and are easily sold.
Both MFs and ETFs have literally thousands of different options. Some are known as index funds and mirror financial industry indexes such as the Standard and Poor 500 or Bloomberg Barclays U.S. Corporate Bond Index, to name just two. Others focus on specific sectors such as large stocks, emerging markets, or healthcare companies.
Utley suggests target date funds as a simple alternative. These invest for specific years and change the investment mix as the date nears. A 35-year-old physician today would consider a 2049 target fund to retire at 65. “With index and target funds, you can go to Vanguard or Fidelity Investments and get a suitable vehicle and be done with the investing part,” he said. “These days you can get the world’s very best money managers for a fee of 0.05%. Why would you pay more?”