I'd like to share an analogy that I really like when it comes to building financial freedom for doctors. Imagine that you need to move water from a river to your house. One option is to grab a bucket, walk down to the river, fill it up, carry it back to your house, and dump the water into a big storage tank. Then you repeat the process over and over again.

Eventually, if you carry enough buckets, you accumulate enough water that you don't really have to worry about running out. It isn't particularly exciting or innovative. In fact, it is pretty boring. But if you consistently keep carrying those buckets, eventually you are going to have a really big reservoir.

The other option is very different. Instead of carrying buckets, you decide to build a pipeline from the river to your house. Building that pipeline requires a lot more work upfront. You need materials, knowledge, and probably some help. Things will break. You might even build part of it incorrectly and have to start over.

But eventually, something pretty incredible happens. Water starts flowing through the pipeline without you having to personally carry every gallon yourself.

This analogy gets used a lot when discussing financial freedom for doctors

Traditional retirement investing is the bucket strategy. You earn money practicing medicine, save a portion of it, invest that money in retirement accounts, and eventually accumulate a nest egg large enough to support you.

Building streams of passive income for doctors, through real estate investing, businesses, or other income-producing assets, is the pipeline approach to financial freedom. Instead of accumulating one giant pile of assets that you eventually draw down, you create assets that continuously produce cash flow.

Predictably, people love to argue about which strategy is better.

I think that's the wrong question.

Because I carry buckets and I build pipelines. And I think doing both has been one of the most important aspects of our path to financial freedom.

The Case for Carrying Buckets

Let's start with the boring strategy. And I mean boring as a compliment.

For most physicians, the simplest path to financial freedom for doctors is remarkably straightforward: maintain a healthy savings rate, invest consistently in broadly diversified low-cost index funds, take advantage of tax-advantaged accounts, rebalance periodically, and give compound interest enough time to work.

I've written before about how much retirement savings is enough and why this approach works. There really isn't anything particularly revolutionary about it. In fact, that is one of its greatest strengths.

Carrying buckets is incredibly simple. Once you establish your asset allocation and automate your investments, there really isn't much left to do. As I wrote in my discussion of Wabi Sabi investing, successful investing does not need to be complicated. Complexity often makes things worse.

You don't have tenants calling you. There are no roofs to replace, businesses to manage, customers to acquire, or employees to hire. Nobody texts you because a pipe burst when it is 5 degrees outside. Instead, you earn your income, save according to your written financial plan, invest that money, and move on with your life.

That last part is especially important for doctors who want to reach financial freedom

We already have incredibly demanding jobs. Most of us have families, hobbies, and other things that we would rather spend our limited free time doing. A financial strategy that requires almost no ongoing effort should not be dismissed simply because it isn't exciting.

This approach is also extraordinarily diversified when done correctly. A physician investing through broad index funds can own tiny pieces of thousands of companies across industries and potentially across countries. That's important because diversification reduces the consequences of any individual investment performing poorly.

Another enormous advantage is liquidity. Publicly traded investments can generally be sold quickly if necessary. Compare that to selling a rental property, which can take months and involve substantial transaction costs.

The bucket strategy is simple, diversified, liquid, scalable, and easy to automate.

That's a pretty compelling list of advantages.

But Carrying Buckets Has Limitations

The biggest downside is obvious.

You have to fill the buckets.

Traditional retirement planning requires accumulating a sufficiently large portfolio and then eventually converting that portfolio into spending during retirement. Suppose your desired retirement lifestyle requires $120,000 annually. Using a simplified 4% withdrawal framework, you might target a portfolio around $3 million.

There are plenty of nuances to withdrawal rates, taxes, Social Security, pensions, and spending patterns. But the basic concept remains the same. You need to build the pile first.

For physicians who begin their careers in their early 30s with significant student debt and essentially no net worth, that can feel slow. I know because that is exactly where I started.

When I finished training, my financial situation was ugly. My net worth was around negative $500,000, our savings rate had previously been essentially zero, and I had hundreds of thousands of dollars of student loans. We had even carried significant credit card debt during training.

Carrying buckets was absolutely part of our solution. We dramatically increased our savings rate and began consistently investing in stocks and bonds. In fact, one of my basic recommendations for physicians remains to save at least 20% of your gross income.

But I also wanted to accelerate the process to financial freedom, like many doctors do.

That's where pipelines became interesting.

Another Bucket Issue: Taxes Later

There is another potential limitation to relying heavily on tax-deferred retirement accounts.

To be clear, retirement accounts are fantastic. I maximize mine, and I think most high-income physicians should take full advantage of the tax-advantaged space available to them as part of a comprehensive financial plan.

The tax deduction today can be incredibly valuable for a physician in a high marginal tax bracket. Investments also grow tax deferred within traditional retirement accounts rather than generating annual taxable dividends and capital gains distributions. But tax deferred does not mean tax free.

Eventually that money comes out. Withdrawals from traditional retirement accounts generally create taxable income, and required minimum distributions can eventually force distributions whether you need the money for living expenses or not.

That doesn't make traditional retirement accounts bad. Far from it. It simply means that the $1 million you see inside a traditional 403(b) is not economically identical to $1 million sitting in a Roth account or even $1 million of cash.

There is a future tax liability attached to those dollars.

This is one reason why I think tax diversification is so important. Having money available from multiple buckets with different tax treatment gives you greater control over how you create income later in life.

And pipelines can potentially add another dimension to that diversification on the path to financial freedom for doctors.

So I Started Building Pipelines

This is where real estate investing for doctors entered our financial plan.

My wife and I bought our first investment property in 2020, shortly after I finished training. We didn't do it because I thought everyone needed to own rental real estate. I also didn't do it because I thought index fund investing didn't work.

I did it because I saw real estate as a potential accelerant.

Our first property was a duplex that produced roughly $1,000 per month in cash flow. That may not sound life-changing, especially compared to a surgeon's salary. But psychologically, it was huge for me.

For the first time, we owned an asset that was regularly putting money into our pocket without that money being directly tied to another hour that I spent in the hospital.

And I think that nuance matters.

I've written repeatedly that “passive income” isn't really passive. A better term is leveraged income. You perform work upfront and continue to perform some amount of work along the way, but eventually the relationship between your time and your income begins to weaken.

Clinical medicine sits on the opposite end of that spectrum. I perform an operation and get paid. If I stop operating, the income stops.

A pipeline, whether that is investing as a limited partner in real estate, directly owning and managing real estate, or working as an expert witness, works differently.

Our Pipeline Was Definitely Not Passive

Our first rental property required a lot of work. We had to find the property, analyze it, finance it, renovate it, find tenants, and manage it. Then we had to learn all of the things that inevitably come with being landlords.

But eventually something interesting happened. The property kept sending us money every month. Then we bought another property. And another.

Over time, we built a portfolio that grew to 9 properties and 19 units, generating roughly $10,000 to $11,000 in monthly cash flow. At that point, the numbers became much more meaningful.

That income doesn't mean I can sit on a beach and completely ignore the properties. We still manage them. There are still problems, vacancies, repairs, tenant issues, and administrative work.

However, the relationship between my time and that income is completely different from the relationship between my time and my surgical income.

That's the pipeline.

I've described a similar phenomenon previously as the real estate flywheel effect. At first, pushing the flywheel is incredibly difficult. Eventually, it starts helping push itself.

Why Pipelines Can Accelerate Financial Freedom for Doctors

This is the strongest argument for building pipelines. Cash-flowing assets can accelerate the path to financial freedom for doctors before they reach their ultimate retirement number.

Imagine two physicians who each spend $150,000 annually.

Doctor A owns a $2 million investment portfolio but has no other income outside of medicine. Doctor B has a smaller investment portfolio but owns assets generating $100,000 of relatively passive annual income.

Who is closer to financial freedom?

The answer isn't necessarily obvious from their net worth alone.

Doctor B has already replaced two-thirds of the family's annual expenses without practicing medicine. That physician could potentially reduce clinical hours, change jobs, take a sabbatical, or simply negotiate with an employer from a much stronger financial position.

This was one of the biggest mindset shifts in my own financial journey.

Financial freedom stopped being a finish line somewhere decades in the future. Instead, it became something that existed on a spectrum. Every dollar of recurring income replacing our clinical income moved us a little farther along that spectrum.

This is why I have called real estate a wealth accelerant.

A retirement account might make me wealthier on paper while leaving my current monthly cash flow unchanged. A cash-flowing rental property potentially increases both my net worth and my monthly income.

Those are two different benefits.

Pipelines Have Some Powerful Levers

Real estate investing for doctors also offers potential tax advantages. Real estate investors can use depreciation to offset rental income, while strategies such as cost segregation can accelerate depreciation under applicable tax rules.

In certain circumstances, investors qualifying for Real Estate Professional Status may potentially use real-estate losses more broadly, subject to all of the associated IRS rules. This has been a particularly important part of our own strategy because my wife has qualified for REPS.

Real estate also offers leverage.

A bank may lend you most of the money required to purchase an income-producing asset. Your tenants then help service that debt while you potentially benefit from cash flow, loan paydown, appreciation, and tax advantages.

Think about how different that is from carrying buckets.

If I want $100,000 more in my retirement account, I generally need to save and invest that money and then wait for it to compound. With real estate, I might invest $100,000 as a down payment to control a much larger asset.

Of course, leverage cuts both ways.

And that's where the pipeline story becomes a lot less glamorous.

Unfortunately, Pipelines Leak

This is where some advocates of passive income lose me. They make building pipelines sound easy. It isn't.

Our real estate portfolio has produced tremendous benefits, but we have dealt with vacancies, renovations, tenant issues, financing, maintenance, contractors, and unexpected expenses. We've had a pipe burst during a Buffalo cold snap that resulted in roughly $25,000 of repairs.

That's not very passive.

There is also concentration risk. An index fund may spread your investment across thousands of companies. A rental property represents a significant amount of capital concentrated in one building, on one street, in one city.

Leverage magnifies this risk.

Debt can accelerate good outcomes, but it can also accelerate bad ones. A leveraged property that appreciates and produces positive cash flow can create tremendous returns on your invested capital. A leveraged property with major repairs, vacancies, or declining value can cause significant problems.

Liquidity is another issue. I can sell an index fund in seconds. I cannot sell an apartment building in seconds.

Direct real estate ownership also creates liability exposure that stock market investing generally does not. Landlords need appropriate insurance, entity structures where appropriate, umbrella coverage, and an understanding of local laws.

Most importantly, pipelines require maintenance.

If you neglect the pipeline long enough, eventually it stops flowing.

Pipelines Also Carry Opportunity Costs

This is an underappreciated part of the conversation.

Money isn't the only resource required to build a pipeline. Time is another. Every hour that I spend analyzing a property, communicating with a contractor, reviewing leases, or managing some other aspect of our real estate portfolio is an hour that I cannot spend somewhere else.

For physicians, that opportunity cost can be enormous.

Maybe you could earn more by simply working another clinical shift and putting that money into index funds. Perhaps you would rather spend Saturday coaching your kid's baseball team than walking through a potential rental property.

Those are legitimate considerations.

There is a tendency in the financial independence community to assume that optimization means maximizing wealth. I disagree. The goal is not to die with the highest possible net worth. The goal is to use money to build the life that you want.

If building pipelines makes your life substantially worse, then the supposed acceleration toward financial freedom starts looking pretty counterproductive.

So Which Strategy Wins?

Neither. Or maybe both.

This is where I think the entire buckets-versus-pipelines debate goes wrong. People tend to approach financial strategies like sports teams.

Index fund investors point out that physicians can become financially independent simply by saving 20% of their income, investing intelligently, and waiting.

They're right.

Real estate investors counter that cash-flowing assets can accelerate financial freedom while creating income, equity, leverage, and tax advantages.

They're right too.

I've explicitly written that you can invest exactly 0% of your portfolio in direct real estate and still become financially free. I believe that completely.

I just don't personally choose to do it.

My Strategy: Carry Buckets While Building Pipelines

Our written financial plan has always reflected a hybrid approach.

When I first became an attending, our basic financial strategy was ridiculously simple. Roughly one-third of our available money went toward paying down debt, one-third went toward traditional stocks and bonds, and one-third went toward real estate.

It wasn't mathematically perfect. It didn't need to be. What mattered was that we were attacking our financial goals from multiple directions simultaneously.

We continue to invest in traditional stocks and bonds through retirement accounts and other investment accounts. Those are our buckets. At the same time, we invest in cash-flowing real estate and have built additional streams of leveraged income. Those are our pipelines.

I've laid this out previously when discussing our financial goals and priorities: we maximize retirement opportunities while simultaneously investing in real estate according to our predetermined criteria.

Why do both? Because the weaknesses of one strategy often complement the strengths of the other. My index funds require essentially none of my time. Real estate requires more involvement. Stocks provide tremendous liquidity and diversification. Real estate provides direct cash flow and leverage. Traditional retirement accounts provide powerful upfront tax advantages. Real estate can provide different tax benefits through depreciation and other strategies. My retirement portfolio creates a large reservoir of wealth. Our real estate portfolio creates ongoing cash flow.

One gives us water stored for later. The other gives us water flowing today. Together they create redundancy.

The Bucket Makes the Pipeline Safer

This is another reason that I think the combination is more powerful than either strategy alone.

Having traditional investments actually makes me more comfortable taking calculated risks elsewhere.

Imagine that my entire financial future depended on our rental properties. Every vacancy, major repair, or change in the local real estate market would carry significantly more emotional and financial weight.

But it doesn't.

We own stocks and bonds. We have retirement accounts. And we maintain appropriate cash reserves. My clinical income continues to support our lifestyle, and our real estate portfolio represents only one component of our overall financial plan.

The reverse is also true.

Because we have cash flow coming from real estate and other sources, I don't need to view our retirement accounts as the only path to financial freedom. A stock market decline therefore doesn't change the entire trajectory of our plan.

The buckets protect the pipelines.

The pipelines reduce our dependence on the buckets.

That is the part of the analogy that I think gets missed most often.

Diversification Is Bigger Than Stocks Versus Bonds

We usually talk about diversification within an investment portfolio. But I think physicians should consider diversification more broadly.

My financial life includes clinical income, publicly traded investments, real estate, and business income. Those income streams behave differently and are exposed to different risks.

That means that my financial future does not depend entirely on my ability to continue performing surgery. It also doesn't depend entirely on the stock market, the Buffalo real estate market, or any individual business. This type of diversification has become increasingly important to me as I've moved further along my financial journey.

Early on, the goal was pretty simple: get out of the hole. Pay off debt. Start investing. Increase our savings rate. Stop doing stupid things with money.

Now the question is different.

How do we make the financial system that we've built increasingly resilient?

I don't necessarily need the highest possible return anymore. What I value increasingly is optionality.

And having both buckets and pipelines gives me that.

You Don't Need to Build My Pipeline

This is perhaps the most important point.

Building pipelines is not mandatory.

Some doctors hear stories about real estate investing, entrepreneurship, or passive income for physicians and develop financial FOMO. Suddenly they feel like they're doing something wrong because they “only” have a retirement account filled with index funds.

Don't.

Your financial plan needs to match your goals, personality, risk tolerance, available time, and desired lifestyle.

If managing rental properties sounds miserable to you, don't buy rental properties. Save aggressively. Max out your retirement accounts. Invest in broadly diversified low-cost index funds. Keep your expenses reasonable and rebalance occasionally. Then go live your life.

You will almost certainly become wealthy if you do those things consistently over a physician-length career.

On the other hand, maybe you enjoy entrepreneurship, real estate, or creating businesses. Perhaps you value generating cash flow now rather than accumulating everything for later. You may also be willing to accept more complexity in exchange for the possibility of accelerating your path.

Build some pipelines.

Just understand that the higher potential acceleration usually comes with additional work, complexity, risk, and responsibility. There is no free lunch.

Financial Freedom for Doctors Is Ultimately About Optionality

The older I get, the more I realize that financial freedom isn't really about retirement.

It's about options.

• Can you reduce your clinical hours if you want to?
• Can you leave a toxic job without worrying about your next paycheck?
• Could you take a lower-paying position that you enjoy more?
• Can you say no to an extra call shift?
• Can you spend more time with your family?
• Could you stop practicing medicine altogether if circumstances ever forced you to?

Those questions matter much more to me than whether some spreadsheet says that I've officially crossed a financial independence number.

Passive income for physicians can accelerate that optionality because it begins replacing clinical income before you completely stop working. Traditional investing creates optionality in a different way by steadily accumulating a large pool of liquid financial assets.

Neither form of freedom is fake. They're simply different.

The Real Goal Isn't Buckets or Pipelines

The goal is freedom.

That distinction matters.

I don't invest in real estate because I want the biggest possible real estate portfolio. I don't contribute to retirement accounts because I want the biggest possible 403(b). And I don't build businesses because I want to work more.

All of these things are tools.

The goal is to reach the point where medicine becomes something I practice entirely because I want to, not because my family financially depends on me continuing to do it.

Carrying buckets can get you there. Building pipelines can get you there too.

For many physicians, the bucket approach will be more than enough. It is simple, efficient, diversified, and requires almost no additional work beyond creating the money to invest in the first place.

For others, building pipelines through real estate investing for doctors, entrepreneurship, or other forms of passive income for physicians may accelerate the process. That acceleration comes at a price in the form of additional complexity, risk, work, and responsibility.

And despite what the loudest voices on either side of this debate might tell you, you don't have to choose.

You can carry buckets while you build pipelines.

That's exactly what I do.

Over time, I've come to see the two strategies not as competitors but as complements. The buckets create a steadily growing reservoir in the background. The pipelines create cash flow that increases our financial freedom today.

Eventually, the question isn't which one will get you to financial freedom. It's how you want to build a financial system that gives you the greatest freedom along the way.

What do you think? Do you carry buckets? Or build pipelines? Or both? Which is better for doctors seeking financial freedom? Let me know in the comments below!