7 physician-specific investing tips from financial planners

By Naveed Saleh, MD, MS
Published March 15, 2021

Key Takeaways

You’ve worked hard to save money for your future. But what are the best vehicles for accumulating wealth and establishing security? Unfortunately, no one simple answer may suffice, according Eileen Freiburger, a certified financial planner (CFP) with Abacus Wealth Partners.

“Financial planning is a process, not a product,” she said. “I've been spewing this for almost four decades since I started in the advisory world. Yet, if a physician were to ask for investment tips, they’ll usually only get the stock du jour, or some other high-fee-laden solution.”

Because of their high earning capacity and other factors, doctors may be in a unique position to take advantage of investment opportunities that are not available to lower wage-earners. Knowing which to pursue and which to avoid is important for investing physicians. 

With this in mind, let’s look at seven physician-specific investing tips from experts.

1. Catch up on your investments

Because it takes many years to become a practicing physician, most doctors delay saving in earnest. Elyse D. Foster, CFP, of Harbor Wealth Management, suggests making up for lost time as soon as you can.

“Given the potential late start in investing, begin to invest for the long-term as soon as possible,” she said. “Be sure you have enough risk and growth orientation, this will help you ‘catch up’ for the late start. Be careful not to pay high fees. All of your money needs to go to work for you to gain the highest returns. Don’t lock your money up in long-term products. Maintaining your liquidity in the early years of investing is important.”

So, if you’re playing catch-up on saving for your future, just remember, it’s never too late to start investing. Here’s how, according to financial experts.

2. Choose investments wisely

Physicians are high earners, and as such can be subject to less-than-enviable offers.

“Many physicians meet the requirements necessary to be deemed an Accredited Investor, which gives them access to complex investments like hedge funds and other alternative asset investments,” said Anthony Watson, CFA, CFP, of Thrive Retirement Specialists.

“The wealth management industry makes a lot of money off these investment products, and they love selling them to physicians. Just because you have access to these ‘exclusive’ and ‘impressive-sounding’ investment opportunities doesn't mean you should seek to invest. Hedge funds and other alternative asset classes are complex, loosely regulated, opaque, and expensive investments that frequently fail to yield a return commensurate with their true risk. I believe they are best to be avoided,” he said.

If you’re not sure where to invest your hard-earned dollars, here are some investments options to consider.

3. Consider asset location

As a physician, you have more investment opportunities than just standard retirement accounts, said Watson.

“Physicians often save and invest beyond what they are limited to under their tax-deferred retirement plan programs in after-tax funded brokerage accounts. Having investments in both types of accounts creates an opportunity to employ a strategy known as asset location,” he said. 

“Asset location is a tax-minimization strategy that takes advantage of different types of investments, getting different tax treatments, thereby maximizing after-tax returns. The strategy is to place income-earning assets like bonds and REITs (real-estate investment trusts) in retirement accounts, so their income is not immediately taxed at traditionally higher income tax rates while placing growth-oriented assets like stocks in brokerage accounts where the growth is eventually taxed at a traditionally lower capital gains tax rate when sold in the future,” he advised.  

4. Be wary of deals that sound too enticing

Watson stressed that physicians should watch for bad actors promising pie-in-the sky returns.

“Physicians are well-compensated individuals because of the expertise they developed through multiple years of study and hard work. Physicians’ expertise is generally not in investing,” he said.

“Physicians should not be lured into trying to beat markets through active investing, even though some outstanding salespeople will do a great job of trying to convince you otherwise. Physicians are best served following a passive investment philosophy that believes in investing based on probability over possibility and in building maximally diversified portfolios using low-cost index funds. Remaining maximally diversified and watching investments costs that eat away at return is the surest way to be a successful investor,” he added.

In short, don’t feel bad if you’re not an investment whiz, that’s what financial experts are for. Meanwhile, it won’t hurt to bone up on the most common personal finance mistakes made by physicians. 

5. Indulge your charitable streak

For those who plan to spread the wealth and pay it forward, a Donor Advised Fund (DAF) may be a good idea, according to Freiburger.

She said, “My favorite investment tip for high earnings is almost always to ask whether they’re utilizing a DAF. It’s an opportunity to take a highly appreciated asset and move it to a vehicle that will give a one-time tax deduction without ever having to pay capital gains!”  

She added, “There’s a lot of tax planning that can take place by utilizing this strategy. The person using this option must have a philanthropic mindset as future distributions may only go to 501c3 nonprofit organizations. However, they can be made at any time, and even in some cases used for intergeneration charitable giving. The portfolio inside the DAF doesn't have to be cookie-cutter, either. Values-aligned firms like ours offer DAFs with portfolios that can immediately make an impact in your communities. You then have the ability to take this immediate tax deduction on a highly appreciated, and sometimes very concentrated, asset and start to carve out your own charitable giving legacy.”

And the best part about charitable giving? Research shows that altruism has scientifically validated psychological benefits.  

6. Invest in what you know

As a physician you may be better acquainted with certain products and can leverage this knowledge, according to Lewis J. Altfest, PhD, CFP, CFA, CPA, PFS, at Altfest Personal Wealth Management.

“Invest in what you have practical experience with. If a specific drug works better than a market leader, invest in it if the product is important to the parent company,” he said. “Invest in private medical companies with new, somewhat proven technologies in need of capital if you can understand the reasons and recognize the investment risk. They could become new Modernas.”

7. Be wary of vague investments

Altfest also cautioned that physicians should not wade into investments that are unclear.

“Don’t have things in your portfolio if you do not understand them, such as some private partnerships, illiquid REITs (Real Estate Investment Trusts), Bitcoin, complicated options contracts, and so forth,” he said.

Bottom line

Finally, many physicians took a serious hit to their finances in 2020 due to the pandemic. If you’re looking to improve your financial outlook this year consider this investing advice, generated by experts in response to the COVID-19 pandemic.

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