Physicians are busy people. Through much of your career you are working to pay off student debt while trying to save for retirement and other needs. These concerns make investing and financial planning an important part of your life.
Explore This IssueJuly 2019
“The best way to think about investing is that there are two components,” said Cynthia Chen, MD, a pediatric otolaryngologist at Nemours Children’s Hospital in Orlando. “One is protecting yourself using investments to shield from liability. The other is to increase your wealth.”
Dr. Chen says it is important to start early and maximize all of your tax-advantaged options. During residency and fellowships, your income is probably low enough to use Roth IRAs. At retirement, you can take out your money tax free. For attending physicians, maximize your 401(k) or 403(b) plans. If you have children, look into 529 plans to cover educational costs.
Investing Is a Part of Personal Finance
“The truth is that probably 90% of what I do is not traditional investing, but personal finance: how to live on a budget, how to pay down your student loans, making sure you don’t pay too much for a house,” said James M. Dahle, MD, founder of The White Coat Investor, a website devoted to financial issues physicians face. “I also make sure that your assets and family are protected.”
Finding a person to help you with these decisions is an important first step.
“People think of financial advisors (FA) like they think of doctors,” said W. Ben Utley, CFP, a financial advisor at Physician Family Financial Advisors in Eugene, Ore. “You get sick, you see a physician, you get a pill, and you go away until the next time. [And], like physicians, a FA can help with preventing problems.”
Many physicians have stocks and bonds in taxable accounts. This can be a poor decision. Tax-advantaged accounts such as a 401(k) or 503(b) allow you to grow your money with no taxes until you take funds out later in life.
Maximize Employer Match for Free Money
“You are leaving the most money on the table by not taking advantage of employer matches of your contribution,” said Utley. “This is free money, and you want to get all you can. Over the course of your career, it can add a substantial amount to your retirement funds.”
Most can put up to $19,000 a year into these accounts. The amount of contribution matched differs from one employer to the next. However, there are reasons to put in the maximum contribution even if your employer doesn’t kick in any more.
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.
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?”
Dr. Chen doesn’t agree that these are the only options. She says that investing in individual stocks can be done by anyone and with little time expenditure. “This is my huge tip on how to invest; put your money where you shop and what you use daily,” she said. “I don’t know anything about turbines, but I do know from personal experience that Apple makes good products, and I see people packing the aisles at Target. Companies that are very integral to your life, and you know others feel the same way, are likely to do well going forward.”
Because you spend time with these products, you get a feeling for when things are beginning to change. You can consider selling, often before problems are seen in the quarterly reports.
Real estate can be a good investment because it often runs counter to stocks and bonds. While owning it can be time consuming, investing in syndicates, private real estate investment funds, or publicly traded companies takes away most of the time commitment. Many physicians have been successful investing in medically related real estate such as offices or surgery centers.
“I believe it was the late Jack Bogle, founder of Vanguard, who said ‘Stay the Course…is the most important single piece of investment wisdom I can give to you’,” said Dr. Dahle. “Any reasonable plan that is funded adequately is going to work as long as you have a plan and stick to it.”
Kurt Ullman is a freelance medical writer based in Indiana.