Let’s just get right into it! You already know what investments I really think you should avoid. So, what are the top 10 ways that doctors should and can (wisely) invest their money?
I didn’t necessarily create this list in an exact order of importance. That will vary based on your personal circumstances. And that is the whole point of a written financial plan…to create you financial goals and priorities and then craft your investments to meet those.
But, all of these 10 options are great ways for physicians (and really anyone else) to invest their money. If you are doing any of these, you are doing something right!
1. In yourself
It’s true. I didn’t put these in order of importance. But this one really is the most important.
Until recently (like within the past year), I had never really considered investing in myself. I obviously had invested in myself in the past, I just didn’t realize it. In fact, the over $400k of student loans that I took out for college and medical school was a HUGE investment in myself.
But I’m not talking about good debt now when I say to invest in yourself.
I’m talking about investing in your well-being, your personal and professional callings, and in your financial education. Doing this will bring tangible and intangible rewards that dwarf anything else on this list.
For example, it’s tough to quantify just how much I have increased my net worth simply by buying books, reading blogs, listening to podcasts, and takings courses on personal finance. Any estimate is likely an underestimate.
But even more, the money and time that I have spent learning about and working on improving my overall well-being is even more significant and even tougher to calculate.
2. Paying debt
You weren’t going to get me through this list without talking about paying debt.
Too many people see paying off their debt as throwing money away. Nothing could be further from the truth. Each dollar that you pay down your debt is a dollar your net worth increases. And each dollar that you pay to your principal above your monthly debt service decreases the amount of interest you will pay. Getting out of debt will increase your cash flow by whatever amount you are paying to debt each month.
And I’ve never met anyone who was debt free who regrets it or is financially worse off.
Interest arbitrage is a great idea. But in my opinion, debt pay down comes first…
3. Your marriage (or partnership)
It’s not talked about enough how important your marriage or partnership (if applicable) is to your overall well-being. It is also extremely important for your financial well-being.
And unfortunately, we all have experienced at some time in our lives just how easy it is to let even our closest relationships slip.
Invest in your marriage through mini vacations, nights out without kids, and just plain talking to each other and showing mutual interest.
This is something that I am constantly working on…and Selenid and I even just took our first mini-vacation since we both graduated last June.
Ok, now let’s get into the more traditional investments that we all think about.
4. Stock Market
I hesitated in calling this section “stock market.” While I think all doctors should invest their money in the stock market, it really should be invested in the stock market only in a very particular way…
And this way is called index funds.
Put simply, investing in broadly diversified low cost index funds is a way to invest in the whole stock market (AKA invest in the US/global economy AKA invest in human ingenuity) for the long term.
Set your asset allocation, invest in index funds, re-balance once a year, and you will win the game.
People really hate bonds right now.
Their rates of return are really low. Every other message that I see online is of people looking for alternatives to bonds in their portfolio.
But let’s remember what bonds are used for. And let’s start to do that by remembering what they are not used for. Investing in bonds is not in order to chase really great returns. They are lower risk investments and thus have lower reward. (But I will mention that there have been time periods over which bonds have outperformed stocks.)
What bonds are actually used for is as a conservative portion of our portfolio that provides diversification and a “cushion” to the short term volatility of stocks.
And they serve very well at that function, even today.
So, I recommend that you have a portion of your portfolio dedicated to bond index funds. This proportion should be equivalent to how conservative you want to be.
More conservative = more bonds and vice versa. I have 15% of my equity portfolio in bonds.
6. High-Yield Savings Account
People are really going to hate that I am including HYSAs on this list. But they are actually an important part of how you should invest your money.
You need an emergency fund. This fund covers your expenses in, well, the case of an emergency. Like a pandemic causing loss of employment, like a major home repair, like a new car when the old one breaks down. And even more disasters that I can’t imagine.
This emergency fund needs to be invested safely. You also need it to be accessible. You do not want to chase performance or you can find yourself with a real problem when you need the money but it’s not there because your investment is not doing well at that point in time.
Invest your emergency fund money in a high-yield savings account (even though they are not currently high yield at all!).
7. Real estate syndications and funds
I’m lumping syndications and funds together because they are fairly similar. They are also what people are generally referring to “passive” real estate investing…even though no investing, including this, is truly passive.
I actually don’t invest in real estate syndications or funds. But that is only because I like to invest in real estate in a different way. But these types of investments can be a really great addition to your portfolio that provides good returns and diversification.
Basically, you give your money to a sponsor who pools it with others’ money to buy either one large property or many properties. You then make money back according to the terms of your agreement if the investments work out well. If not, you can lose some or all of your money however.
So performing due diligence before investing is critical.
8. Direct real estate investing
Personally, this is my favorite way to invest your money.
Direct real estate investing entails owning one or many properties that you rent out. Then, you make money in many different ways:
- Cash flow
- Mortgage pay down by tenants
- Forced appreciation
- Tax savings
It’s true that this requires active involvement. But there are ways to minimize this either by automating your systems (like Selenid and I do) or by hiring a property management company.
9. Your practice
This one probably should have been higher but to be honest I didn’t really think about it until now. That’s probably because I am a hospital employee.
But many (although now less than 50% for the first time) of physicians are in private practice. Investing in your practice can grow your profits exponentially.
The Easiest Way to Find Savings for Your Practice
One of the private practice plastic surgeons that I knew well in NYC told me that he invests over $1 million in just the employees in his small office. However, the return on this for him was incredible both monetarily and otherwise.
Come to think of it, even employed physicians like me are investing in their practice. My way of growing my income/investment at work is to improve my skills and outcomes and productivity to negotiate a better subsequent contract.
I’m the first to call out others for calling things like a new watch an “investment.” It just isn’t. It’s better just to not pretend and to call a spade, a spade. The watch itself is not an investment. It’s a consumer item that you bought for some reason.
And that reason is what differentiates if an investment was made or not with the purchase. If the purchase was made intentionally, then you made an investment in your happiness and well-being.
When I say that the purchase was made intentionally, I specifically mean that that purchase was made after thought and patience at a price that is equal to or less than the amount of happiness/satisfaction/utility that it brings you.
Do this and the purchase is worth it. By definition. Buy it guilt free and enjoy. Don’t let anyone spend shame you.
If it doesn’t meet these criteria, reflect some more on why you want this purchase and if it is really worth it to you…
What do you think? Did I miss any ways that you should invest your money? Do you disagree with any that I have included? Let me know in the comments below!
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