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Thinking About Investment Liquidity as a Doctor

In the end, doctors are very well set up to establish a sound financial foundation and reach financial freedom – the idea that we can practice on our own terms. But we still need to understand various ins and outs of investments. And this includes investment liquidity as a doctor.

The basic principles for financial freedom are relatively simple:

Because we have high compensation, the most important of these principles, saving, is comparatively easy as long as our spending is intentional and well-managed.

However, there are nuances including investment liquidity for doctors that we need to understand, which is why I am focusing on this topic here!

Net worth doesn’t care about liquidity

In broad terms, net worth is your measurement of wealth.

investment liquidity doctor

And your net worth is equal to your assets (things you own that put money in your pocket) subtracted by your liabilities (things you own that take money out of your pocket).

And here is my most recent net worth.

But not all assets are the same

Some assets are more liquid than others. Index funds, mutual funds, and ETFs are liquid. Non-cash flowing property is illiquid. Private equity investing or investing in a syndication is illiquid.

And you need to balance any illiquid assets with liquid ones. For example, if your net worth is $5 million but all of those assets are illiquid, you still have no money to spend if you need it right now or lose your primary source of income – a reality that many experienced during the COVID-19 pandemic.

And that is a problem. This often happens when plastic surgeons have most of their net worth tied up in the residential home, their practice, and retirement accounts with age limits for penalty free withdrawal.

Check out my best-selling book, Money Matters in Medicine!

Everyone’s investment journey is different though

Especially in the beginning of one’s career, investing and maximizing in more illiquid investments like retirement accounts makes the most sense due to employer matching contributions.

Once one “fills that investment bucket” to the maximum, the remaining savings will spill into more liquid investments like index mutual funds and ETFs. By mid-career at least, the importance of balancing the liquidity of assets is imperative.

Planning an investment waterfall like this can help you do this.

And lastly, it is important not to overlook the most liquid investment


The downside of cash is that it does not compound and grow like other investments. But its upside is that it is 100% liquid as long as the US dollar remains intact.

So, I don’t recommend keeping all of your savings in cash. By doing that, you are actually losing money due to inflation, which reduces the purchasing power of money.

However, keeping some liquid cash, especially early in your career when your assets are more illiquid, is a recommended financial strategy. This is called an emergency fund.

A sound rule of thumb is to keep 3-6 months of your expenses in an emergency fund of liquid cash. By doing this, an emergency or immediate need to liquid cash can be covered by your emergency fund without the need to take on debt. This effectively is the cushion for your illiquid assets. 

As you progress and your investment liquidity as a doctor becomes more diverse, the amount kept in your emergency fund or even the need for an emergency fund lessens

But, you need to keep in mind that any liquidated assets will stop growing via compound interest. As a result, the growth towards your nest egg for retirement and/or financial freedom is stunted.

What is the right balance of investment liquidity for a doctor?

Ultimately, the best financial and investment plan is one that is personalized to you, your risk level, and your liquidity needs. Understanding these basic concepts will help improve your financial well-being and accelerate your path to financial freedom. 

A good rule of thumb that I’ve heard is that you want no more than 60% of your assets to be illiquid.

I think this is reasonable for a mid to late career physician. But I don’t meet that balance. Roughly 75% of my stock investments are in retirement accounts. And the majority of my net worth is in real estate – although the majority is cash flowing and thus more liquid due to the money it throws off to us each month. We also have an emergency fund of 3 months which gives us more flexibility to be somewhat less liquid.

So, it may never be perfect. But, as a doctor, you do want to consider and find a balance in your investment liquidity.

Here are some other great posts focusing on building your wealth and financial well-being!

What do you think? What is your investment liquidity as a doctor? Is it the right balance for you? Does it matter? 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].

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