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The 3 Most Tempting Current Investments to Avoid

I’ve said it many times. The path to financial well-being and financial freedom for high income earners like physicians is simple. The problem is that sometimes it is so simple that people either get bored with it or think they need to be “doing more” to be successful. And then they succumb to tempting investments. The type of investments that are best avoided and actually can do serious damage to your wealth building.

That’s what this post is all about.

Let’s first review the simple path to wealth for a physician

  • Save at least 20% of your income
  • Invest those savings in broadly diversified low cost (passively managed) index funds
  • Retire when your nest egg equals 25x your expected annual expenses for retirement

That’s it. Truly.

If you would like to see more in depth discussions and case examples of these principles and how they work, check out these posts:

There are of course other paths that work…

tempting investments
Don’t do it!

For instance, my path incorporates more strategies that the simple path. For instance, I invest actively in real estate. The reason for choosing to add other strategies is usually to accelerate one’s wealth building. That is my reason at least. Plus I also like it…so win-win.

But the point is not that the simple path to doctorly financial freedom is the only way to get there. The point is that it is a super simple (way more simple than more doctors will ever realize) way to get there.

So, as a baseline, this is where you should start out.

Anything added on top of this baseline, like my real estate investing, needs to function in a similar manner to the tenets laid out in the simple path:

  • It needs to be based on an investing strategy that does not rely on having a functioning crystal ball
  • It should fit your overall financial plan i.e. it should help you reach your financial goals
  • The risk needs too meet but not exceed your risk tolerance

That’s really about it. 3 simple criteria. However, this excludes the majority of investments. It especially excludes fad investments, of which there is always an abundance. Regardless of time, place, person, or country.

Related Post:
My Written Financial Plan Update: New Financial Goals and Priorities

So here are my top 3 most tempting current investments to avoid

And I’ll be brutally honest from the get-go. I have definitely been tempted by all of these investment options. So much so that I have talked to Selenid about them.

But, what has stopped me is that our written financial plan calls for a 3 month waiting period before any changes can be enacted. In all cases, within 3 months of my initial interest, cooler heads have prevailed and I recognized that these investments did not meet my 3 simple criteria presented above.

So, let’s get into them…

1. Cryptocurreny

Oh yeah. You all knew that this was coming. The queen of all tempting investments.

Cryptocurrency is the hottest investment opportunity/strategy/whatever you’d like to call it in our lifetimes so far. And I’m not going to go into exactly what it is or what it purports to be. But I do want to explain why it comprises exactly 0% of my investment portfolio.

First, I’m way too late

People love to look back and say “Oh wow, if I’d invested $100 in Bitcoin 10 years ago, I’d be a ba-gillionaire right now. Well, that is a classic example of a retrospective bias. We could do this all day with horse bets, sports wagers, or anything else. It doesn’t change the nature of the next bet you place…it’s still a bet. and I can’t go back in time and get in on that action. I missed it. Oh well.

Second, cryptocurrency is a currency

It’s a way of buying goods and/or services. I don’t invest in currencies. They are notoriously fickle. And that is what crypto is at its core.

Third, there is way too much risk involved

Risk that I and any high income earner does not need to reach our financial goals. Just look at Bitcoin prices the past year. Do you really want to own an investment that is going to spike or free fall based on Elon Musk’s tweets? I hope not! Its volatility is well established but that is about all of it that is established. It’s above my risk tolerance and should be above yours.

People will argue that crypto is the way of the future. It might be. I have no idea. I also have no horse in that race. So it doesn’t matter. I win either way. If you wager your financial future on being right about this, you can win. But you also can lose…big.

2. SPACs

SPACs are another super hot investment out there right now. SPAC stands for Special Purpose Acquisition Company. No idea what that means or describes? Perfect! It’s just another investment designed to make others wealthy off of your money by making something seem much more complicated than necessary.

Here’s the bare bones version of what SPACs are. And they have been around for a long time. So don’t get fooled into thinking this is some mega new innovation that can’t fail. They’ve actually failed before already…

Anyway, SPACs are companies that buy private companies, take them public with an IPO, and then merge with them. If the company fails to go public, the investors get their money back. But…if it does go public, the fate of the investors’ money is the same as the fate of the company. Good or bad…

Why would such companies ever need to exist? Valid question. Well, the premise is that they are comprised of managers and personnel that can do a better job at taking a company public than the company’s own people. This means they theoretically can raise money better and faster and optimize operations among other things.

This right here raises a few flags:

  • Don’t most IPOs fail and lose money after going public…yes, they do
  • If a company was so good to be taken public, shouldn’t they be able to/want to do it themselves without diluting their profits by merging with a SPAC…hmmm, I would think so
  • Isn’t this pretty much the same as stock picking or investing in an individual company, with increased risk and a complete lack of diversification…you are again correct

This is why I do not invest in SPACs. And interestingly, a well known person within the physician finance community is currently emailing their mailing list touting an opportunity to invest in a SPAC with them…so this can definitely come to your doorstep as a wolf dressed in sheep’s clothing.

3. Actively managed mutual funds

And this is the real wolf in sheep’s clothing. They seem so benign. It seems so simple. You find a mutual fund, like the ARKK fund, and it has amazing gains in the past few years. Gains that really look impressive compared to the overall market (which would be captured in broad index funds).

Of the three, this is the one that seduced me the closest to actually investing in it. Mind you, I was considering a very small percentage. But still, why would I dedicate even 1% of my portfolio to something that has been proven to be worse than my other investments time and again?

What could be wrong with jumping on the train? Just a little bit?

I’ll tell you exactly what is wrong!

Let’s keep ARKK as the example fund here. Cathie Wood, the found of ARK and its funds, has done very well over the past few years. Her fund(s) has outperformed the market. She has been part of the 20% that outperforms the market in a given year. And she’s done that a few times in a row.

Does this mean that she has the formula to best this trend?

I’ll save the suspense. The answer is no. NO! There have been many Cathie Woods before her. and there will be many more. Her besting the market one year, even three years, gives her exactly the same chance of doing it again the following year…20%. That means that she still has an 80% chance of losing. So, I’m still going to place my money in the 80% every.single.time.

And, just because I am not investing with her during her winning years, it doesn’t mean that I haven’t been winning. I have been. Because I’ve been approximating the market. True, I haven’t won as much, but I still won.

However, when she loses…and she will lose…I will not lose. But those that invest with her will.

So the options are:

  • Win regardless by investing in index funds, or
  • Maybe win, maybe lose by investing in anything else

In the words of Jay Rock, “Win, win, win, win, f*ck everything else, win, win, win, win.”

And I still haven’t even mentioned taxes and fees

Actively managed funds make many more trades. Because they are actively run based on the whims of a human being. So they incur more fees. This also means that they incur more taxes.

Throughout a 30 year investment career, this will cost you hundreds of thousands of dollars. Is your fund going to consistently beat the odds and outperform the overall market by enough to overcome all of these fees and taxes? I’m not counting on it.

There are other tempting investments that I avoid

Like individual stocks, real estate investing for appreciation, commodities, stock options and puts, and many more.

But these are the investments that I see tempting so many people in general. But especially high income earners. I see “financial advisors” cold messaging, calling, or e-mailing physicians touting these “incredible” opportunities that are not to be missed.

Honestly, it’s scary. Because without my financial education, I may have fallen for them. Heck, even with my financial education, these investments were tempting to me.

So that is why I want to point these ones out in particular and explain why I don’t (and you shouldn’t) invest in them!

Looking to start or enhance your financial education? Look no further!

What do you think? What investments have been tempting to you? Did you invest in them? What stopped you? Do you invest in some of these? Why? Let me know in the comments below!

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    Jordan Frey MD, a plastic surgeon in Buffalo, NY, is one of the fastest-growing physician finance bloggers in the world. See how he went from financially clueless to increasing his net worth by $1M in 1 year and how you can do the same! Feel free to send Jordan a message at [email protected].

    25 thoughts on “The 3 Most Tempting Current Investments to Avoid”

    1. Cryptocurrency is best considered a commodity- not a currency. It should be considered as part as a balanced investment strategy. 5% of your portfolio is probably about right. It’s a hedge against foreign manipulation of currency and inflation. Gold of course is an alternative. Agree with the other points. Thanks.

      • Thanks Cameron, I have to disagree but I respect your take. Regardless as 5% of a portfolio, I don’t have a big problem with that

    2. I think your views on SPACs and crypto is very simplified, and not entirely accurate. There is definitely some truth to what you are saying. However not all cryptocurrencies are “a way of buying goods and/or services.” Bitcoin is horrible as a way of buying goods and services. It would be more approbate to compare it to gold. And Etherium can be a currency, however is also a technology. As for your thoughts on SPACs it could be partially correct and partially incorrect. Not all SPACs are equal. Lumping all SPACs into the same bucket is incorrect. I do appreciate your article and opinion. Thank you for sharing the article.

      • Thanks for your thoughts Tyler. I am definitely a simplified rather than a complexifier. I think a lot of that is missing in personal finance and leads people to lose a lot of money. Are there ways to navigate these speculative investments? Sure. But are they worth the risk especially for a high income earner following basic principles? I say no. I’m less concerned about the “exception” and more concerned with the “rule”

        • I can agree with your comment, specifically for those who are not interested in doing deep research into what they are investing. I think the rules you stated especially with SPACs are probably very good for the general person who wants to invest but doesn’t have much knowledge of the specifics. Although I think I align with Cameron on keeping a small portion of your investments into crypto, even if you don’t know every much about it. That is as long as your not speculating on random coins, but keeping the investments to larger caps such as bitcoin, ADA, and etherium. But as I mentioned if you like doing research into companies, I am not averse to SPACs. You just need to avoid bad companies, or those that are hyped up or overvalued.

    3. I agree with your “formula” for having 25x your annual expenses, as a base from which to draw for retirement. I had been an index-fund investor for many years, but what kept eating at me was that question “What if the year I decide to retire, we have another COVID-19 hypersonic bear market…but it lasts more than 3-4 months?” Those of us in the 4th quarter, within the 2-minute warning, within 5 (or 10 years at most) of retirement, can’t afford that risk.

      With that thought in mind, well over 10 years ago, I transitioned to “Dividend Growth Investing”, spending an hour every a.m. and 1/2 hour or so every p.m. doing my own due diligence via Morningstar, Vanguard, Fidelity, Barrons, and other “DGI” websites. Instead of depending on passive mutual funds or ETF’s (e.g. VYM-Vanguard’s High-Dividend Yield ETF…which is a mediocre product at best) with focus and vigilance, one can create a DGI mutual fund, so to speak. A combination, equally weighted, of individual equities, ETF’s, REIT’s, CEF’s. I have diversified over several sectors of the North American economy, e.g. Basic Consumer Goods, Discretionary Consumer Goods, Utilities, Energy, Information Technology, Financials/Banks, Basic Materials, Infrastructure, REIT’s, and add some dividend-paying tax-advantaged Exchange-Traded Funds and Closed-End Funds.

      My current “fund” distributions/dividends annually is 75% of my current annual salary/bonuses; dividend yield is 4.7%; yield on cost is 6.5%; 5-year dividend growth rate 5.5%; and per (I won’t name the sites) various websites, my “portfolio” is 60% rated “very safe”, 20% “safe”, and 20% unrated (none of the sites tend to rate ETF’s/CEF’s). My current annual “salary” from my portfolio is 22% above the threshold of meeting my annual expenses, and I won’t have to draw from the principal, except for major expenses, e.g. new automobile, A/C & heating system need replacing, painting/major home repairs.

      I do think more clinicians should take time to educate themselves upon the benefits of Dividend Growth Investing and build a “Wide Moat” of Dividend Champions/Aristocrats, thus when time to retire, the power of compounding has been realized.

      Instead of being a landlord or investing in real estate, which is a fine endeavor that takes diligence/vigilance/followup, I suggest that one may alternatively (or simultaneously if one is a true over-achieve) take time to research various companies by learning how to translate an annual report; learning how that company did during the 2008-2009 recession; did they continue/suspend/increase dividends and payouts, etc ?

      As far as crypto currency and the ARK funds, unless you have money to burn and 10-20 years’ timeline, you are swinging for the fences and unless you’re a pro, fuggedaboutit, as you’ll lose more than your shirt.

      Just my two cents. Pardon any errors in spelling or grammar. Sent from a Device That Complexifies My Life.

    4. I dont understand Cryptos, hence I have not invested in them.
      I prefer covered call strategy in good to great stocks.
      Finally , I do agree the medical colleges should have special course on managing a practice and make young physicians financially savvy.

    5. Within Crypto, there are US dollar stable coins, eg. USDC, the one issued by Goldman Sachs, which is fully audited, that one can receive safely 8% APR (safe, because you keep control of the private keys, which is unlike the case when you have your money at a traditional centralized bank). Why keep your dollars in a regular bank when they use your money for fractional reserve purposes and pay you < 1% APR. The banks are laughing at the retail customers, as they profiteer off of them.
      There is also a lot of valuable work being created in the crypto space known as “DeFi”. This space is already just beginning to disrupt the traditional financial sector. The institutions already know this and are just now getting in, but will spread fear and disinformation to keep the retail mom & pop at bay, until they have fully loaded up on their positions. Later, at much higher prices of course, expect a call from your traditional financial advisor recommending that you put a small percentage of your portfolio into crypto. Crypto gains are part of the inducement to move even more to a future cashless society. As such, the price MUST GO UP for the inducement to work. Just watch how this plays out.

      • I totally agree! There is so much more to cryptos than Bitcoin and Ethereum. The apps and businesses that sprout from the blockchain are going to disrupt every industry and especially the finance world. DeFi is going to change the way we do things. And, yes, why leave money in the bank to get 0.01% when you can get in some cases 10%! Dr. Frey, please investigate cryptos and get up to speed. Your current advice will cost people the opportunity to create additional wealth!

        • My argument is not to leave money in the bank…unless it’s your emergency fund. And I absolutely would beg you not to invest your emergency fund in crypto…

          You are right that by advising against speculation, some people may not create a lot of wealth. Just like by advising against playing the lottery. But I believe in the sound principles that have led and will keep leading to financial freedom. But still I am always welcome to other views. Just haven’t heard any yet that convince me.

    6. I think I agree in most of what is written. In the end, for high income earner, it’s not worth the volatility and exit strategy. Long term, 15 years, where most of us are. it’s very hard to beat index funds. That being said, I do invest in individual stocks for other reasons including hobby. Second, I believe in crypto. But not sure which one will work in future. There have been 4000 cryptos ( If Facebook, Amazon or Apple come with their own crypto. If all come up with one together . I will invest definitely invest in that. For high risk investments thrill and adventure. I do start ups. As hobby and especially when I feel market is overpriced.
      You did not speak about other crypto etfs. That includes technology used to store, mine, energy/technology used and secure Cryptos and also etf with collection of all cryptos. Can u discuss about ther if possible. Thank you.

    7. I agree with your three forbiddens. Crypto is pretend money and there are many thousands of different cryptos. There is no limited supply of crypto. SPACs are an obvious scam, pig in a poke. Individual stocks, however, can be excellent investments if you know what you are doing. I almost hate to say it, but my individual stocks have done very well. Here’s a tip: Avanex.

    8. Totally agree with everything you said. Great advice. I was seduced enough to have about 1% of my portfolio in active funds (some even in ARKK). I look at it as bringing a little excitement to the portfolio, but I totally agree that the 1% would do better over the long-term in a low cost index fund like the rest of the 99% of my portfolio. And I teach my kids that investing should be boring- a few broad index funds is all you need and then rebalance a few times a year.

      • Thanks Drew! I don’t think there’s anything wrong with 1-5% of your portfolio invested like that. I just get worried when I see people investing 50% or more like this!

    9. Dr Frey’s site mentioned just once in the RE Section of NYT today 10 Jan 2022 re his moving to miserably cold snowy Buffalo, NY. His financial wisdom developed over and despite 7 years of intense surgical residency and fellowship is quite remarkable. His blog and other sites reached through his site like are highly educative and useful. Perhaps he could weigh in on index mutual funds vs actively managed and circumstances where each might be better than than the other. He could also list the books that got him started on the need for financial education of the layman investor. A book I would suggest is the long ago published book Moneylove by Jerry Gillies & the other by retired neurologist Dr William Bernstein. Best index funds portfolio in the world is the Thrift Savings Plan for Federal employees the largest savings investment plan ever run by Blackrock overseen by an independent Federally appointed trustee.


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