Ascent Equity Group’s mission is to help fellow physicians not only build lasting wealth but to create additional income during their working years, without adding on a second job, so they have more flexibility and freedom in how they spend their time.
Ascent was founded by three doctor dads fighting for more control over their time to enjoy life as they choose and now they strive to do the same for you. Doctors work extremely hard with very long, demanding hours, and they also earn a substantial income. It’s time that your dollars work as hard for you as you do for them. Many physicians don’t know what to do with their money once they have it. It makes sense since you have spent the last decade of your life learning how to save lives, not how to invest, save on taxes, or how to diversify. Many doctors wonder what types of investments make the most sense for them, their situation, and their goals. Building wealth outside of medicine requires a strategic approach and diversification. At Ascent Equity Group, we understand that physicians have unique financial circumstances, and we’re here to guide you on the path to financial success outside the world of healthcare.
Last updated: November 2, 2023
Introduction: Helping Doctors Navigate the Volility of the Financial World
Managing personal finances and investments often feels like venturing into the Wild West. Despite years of rigorous medical training, many physicians find themselves needing more financial education. The key to making the most of your position as a high-income earner is to equip yourself with the right financial knowledge so you can choose a team to help you reach your goals.
In this comprehensive guide, we’ll explore the best investment strategies tailored to physicians in 2024. Whether you’re a seasoned investor or just starting, we’ll cover a wide range of options, from debt reduction to alternative investments like art and collectibles. By the end of this article, you’ll have a good grasp on where physicians should invest.
Best Investments for Doctors
As physicians, your high income and unique situation provide access to investment opportunities that others might not have. The key is to make the most of these opportunities through smart asset allocation, balancing risk and reward, and aligning your investments with your financial goals.
We’re going to cover fourteen of the best investment strategies for doctors, let’s start with the most known and get to the more obscure as we go.
1. Reducing Debt
The average physician carries a significant burden of debt, often exceeding $200,000 from medical school alone. Prioritizing debt reduction is an investment in yourself and a step toward financial freedom. Paying off debt not only saves you from accruing interest but also frees up capital for other investments. Explore strategies such as making multiple payments, paying more than the minimum, or consolidating and refinancing loans. However, you don’t have to wait to start investing until after your student loans are paid, especially since most of us have extremely low-interest rates on these loans. It’s worth a discussion with your fiduciary to decide how much to allocate toward paying school loans off while redirecting some funds into investments. We do generally recommend ensuring you don’t carry consumer debt each month as credit cards often have sky-high interest rates and can get away from you very quickly.
2. High-Yield Savings Accounts
Don’t let your surplus funds shrink against inflation in traditional checking or savings accounts. High-yield savings accounts offer interest rates significantly higher than national averages. Shop around for the best offers, including online-only banks, which often provide competitive rates due to lower operating costs. High-yield savings accounts enable you to earn compounding interest on your savings. Right now, HSA’s are offering around 5% interest, which makes it a great place for physicians to store cash while they wait for a great investment deal to come along. An HSA isn’t an investment itself, but it’s a great place to house your emergency fund savings and as a placeholder in between investments. We’re fans of always having six months or more of your living expenses in an HSA in case of any emergencies, as you’re probably aware, hospitals do not always create reliable, steady employment and you want to be prepared for anything.
3. Certificates of Deposit (CDs)
Certificates of Deposit (CDs) are a low-risk way to grow your money. With locked interest rates, CDs offer a fixed return over a specified term, ranging from three months to a decade. Longer terms typically yield higher interest rates. CDs provide a safe haven for funds you won’t need immediate access to, helping you accumulate wealth steadily. This can be ideal for middle-of-the-road life expenses like a down payment in a few years, college tuition, or weddings coming up.
4. Index Funds
Index funds are ideal for long-term investors seeking a hands-off, low-fee approach. They track market indexes, such as the S&P 500, and offer lower fees compared to actively managed funds. Index funds focus on the bigger picture and aim to match market performance. Examples include S&P 500, Dow Jones Industrial Average, and Nasdaq index funds. This is the classic investment strategy that we think should be included in every portfolio; however, we don’t believe it should be the only thing in your portfolio.
5. Mutual Funds
Mutual funds pool funds from investors and are managed by fund managers. These funds align with investors’ financial goals and risk tolerance. Types of mutual funds include money market funds, bond funds, and stock funds. They provide diversified portfolios that suit various risk profiles. Another reliable classic for the long term, but again, you don’t want all your eggs in one basket here.
6. Individual Bonds
Bonds offer stability and predictable returns in a diversified portfolio. U.S. Treasury bonds (T-bonds) provide a low-risk, albeit generally low-interest-rate, option. Municipal bonds offer tax-free interest income, while corporate bonds offer competitive rates. Bonds are accessible, with U.S. Treasury bonds starting as low as $25 per bond.
7. Individual Stocks
For physicians interested in the stock market, trading individual stocks can be lucrative when actively managed. Investment apps make it easy to start educating yourself and purchasing single shares. Working with a licensed financial advisor can provide valuable insights into individual stock options. This generally isn’t an ideal approach for a physician learning to invest because it requires a strong understanding of the market and a significant amount of time to dedicate to doing it well.
8. Exchange-traded funds (ETFs)
Exchange-traded funds (ETFs) operate similarly to mutual funds but can be traded like individual stocks. They provide easy access to diversified portfolios, often tracking indexes or specific sectors. ETFs offer flexibility with intraday trading and lower fees compared to mutual funds. Consider popular ETFs like SPDR S&P 500 ETF for broad market exposure.
Now here are some medical practice options that you may or may not have considered before. Here are some lesser-known great ways for doctors to invest their money.
9. Private Practice
For physicians, private practice presents multiple investment opportunities. Starting your practice or buying into an existing one can significantly boost your income. According to a 2021 Medscape report, self-employed physicians can earn up to $52,000 more on average than their employed counterparts. Private practice offers not only financial benefits but also greater autonomy and lower daily stress. But starting your own private practice isn’t the only way to partake in these benefits, you can buy into an existing one, partner with others, or invest in an existing one.
10. Medically-Adjacent Business
Diversifying your income through medically-adjacent businesses can be a lucrative strategy. Consider ventures such as dental labs, dialysis centers, health insurance consulting, hospices, imaging centers, or outpatient surgical centers. These businesses leverage your medical expertise while providing opportunities for passive income. Collaborating with partners or hiring operators can make these ventures even more attractive.
And of course, you can’t talk about investing without mentioning Real Estate, but which type makes sense for you?
Real estate offers diverse investment avenues for physicians. Physician loans can facilitate home ownership and equity building.
11. Active Real Estate
Refinancing your home is one way to purchase rental properties that can provide additional income streams. Active real estate can be for long-term or short-term rentals either as a Landlord or vacation home host. This usually requires a significant amount of time, energy, and commitment to manage successfully.
12. REIT Real Estate
Real estate investment trusts (REITs) offer a way to invest in income-producing properties without the full upfront capital or hands-on management. REITs are required by law to distribute at least 90% of their taxable income to shareholders in the form of dividends. This can make them an attractive option for income-oriented investors.
Unlike owning physical real estate, which can be illiquid and require significant capital, investing in REITs offers liquidity. You can buy and sell REIT shares on stock exchanges, making them easier to manage.
13. Syndication Real Estate Investing
Syndications are similar to REITs in that they provide the income-producing benefits of real estate without requiring the full cost of a property or any hands-on management. Syndications pool funds from many investors to purchase a large-scale property to be managed and improved by a group you trust.
You can achieve diversification in syndications by varying your asset classes such as apartment complexes, storage units, or medical offices, and by looking at the structure of the deal, whether it is debt, equity, or preferred equity. This is our specialty, it’s what we help facilitate here at Ascent Equity Group. We create physician-based syndications to help our peers achieve more time freedom and flexibility by procuring an additional, passive income stream.
And now we’ll end our list with the most obscure:
14. Collectibles and Other Appreciating Assets
Investing in collectibles can be a valuable strategy for diversification. These assets tend to appreciate or hold their value over time, offering an alternative to stock market volatility. You can even invest in a variety of consumables like wine, liquor, or collectibles like art, cars, fashion, jewelry, and even movies. However, managing and maintaining collectibles can entail additional costs and connections, so consider them as a supplement to a diversified portfolio.
Remember that like any investment, it’s essential to do your due diligence, consider your investment goals, and consult with a financial advisor to determine which strategies align with your overall situation, goals, and risk tolerance.
In the next sections, we’ll explore the benefits and risks of investing, factors to consider before investing, and the importance of tax strategy in your financial plan.
Benefits of Investing
Investing offers numerous benefits for physicians looking to secure their financial future:
1. Combat Rising Costs
Investing can help counteract the effects of inflation and the rising cost of living. By generating returns on your investments, you can maintain your purchasing power and financial security.
2. Retirement Planning
Smart investments play a pivotal role in planning for retirement. Contributions to retirement accounts like 401(k)s and traditional IRAs can reduce your taxable income, helping you build a nest egg for your golden years.
3. Wealth Building
Investing allows you to build wealth gradually over time. By strategically growing your assets, you can achieve financial milestones in the short and mid-term and secure your financial legacy.
4. Tax Efficiency
Properly structured investments can minimize your income tax liability. Consulting with a certified public accountant (CPA) or financial advisor can help you optimize your tax deductions and navigate the tax code efficiently.
Risks of Investing
While investing offers substantial rewards, it’s essential to acknowledge and manage the associated risks. Every investment carries a level of risk, and your risk tolerance will influence your investment choices.
Common investment risks include:
Market Risk: Investments can lose value due to market fluctuations.
Liquidity Risk: Some investments may not easily convert to cash at fair market value.
Concentration Risk: Overinvesting in a single asset class or security can expose you to higher risk.
Credit Risk: The issuer of a bond may default due to financial difficulties.
Reinvestment Risk: Reinvesting funds may lead to lower returns in a changing interest rate environment.
Inflation Risk: Failing to outpace inflation can erode your purchasing power.
Horizon Risk: Unexpected events may force you to exit the market prematurely, impacting returns.
Longevity Risk: Outliving your savings or facing unexpected expenses can threaten your retirement plans.
Foreign Investment Risk: Global conditions can affect investments in foreign markets.
Working with a fiduciary can help mitigate these risks because they are legally obligated to present only the options that align with your best interest. Additionally, building financial literacy, staying informed about market conditions, and diversifying your investments can enhance risk management.
What to Consider When You Invest
The options we listed in the article here are still only skimming the surface of what is possible. Before diving in, take time to assess your financial situation and define your investment goals, but set a deadline for yourself to ensure that you take action.
Consider the following factors:
Identify your short-term and long-term financial objectives. Whether it’s securing a comfortable retirement, generating passive income, paying off debts, or funding education, your goals will shape your investment strategy.
Evaluate your risk tolerance to determine your comfort level with different types of investments. Understand that risk and return are closely related, and higher-risk investments may offer greater rewards but come with increased volatility.
Define your investment horizon based on your major expenditures and financial milestones. Short-term, medium-term, and long-term investments require distinct approaches and asset allocations.
Consult a CPA or financial advisor to devise a tax-efficient investment plan. Leveraging tax deductions and optimizing your tax position can enhance your overall returns.
Building wealth outside of medicine is a worthwhile and multi-faceted journey that requires active due diligence, professional guidance, and diversification across various asset classes.
Begin your investment journey by assessing your current financial situation, focusing on debt reduction, and prioritizing retirement planning. Once you’ve determined your risk tolerance and investment goals, explore a range of options, from index funds and bonds to real estate and collectibles.
Remember that investing is highly personal, and there’s no one-size-fits-all approach. Success in the ever-changing world of finance requires resilience, agility, and continuous learning. With the right tools and strategies, you can harness the potential for substantial returns and secure your financial future.
We started Ascent Equity Group after making a passive real estate investing course for our physician peers. Even though our students were successfully investing themselves, they continuously wanted to know which deals we personally selected, so eventually, Ascent was created to facilitate the vetting and management of these large deals.