Investing for DoctorsOctober 13, 2021
Becoming a doctor requires significant time and money, which may delay your investing efforts due to a lack of resources or opportunity to research your options.
We created this investing for doctors guide as a starting point to explain how doctors can invest their money, common physician investment options and tips for investing.
It’s essential to remember that doctors generally earn high salaries after graduation but often accumulate large amounts of student debt due to the cost of medical school. Additionally, because many physicians cannot save for retirement until later in their careers, those savings may be a higher priority.
Physician Investment Options
When it comes to investing for doctors, it’s essential to consider all your options, including the following:
Employer retirement plan
Contributing to an employer retirement plan can be a simple first step in investing for doctors.
With this option, a portion of your salary is automatically invested out of your paycheck to help save for retirement. Doctors employed at non-profit hospitals may have a 403(b) option similar to the 401(k) option offered at private hospitals or private doctors’ practices. Both plans are similar, with caps on how much can be contributed. However, investment options differ depending on which type of plan your employer offers.
Regardless of your plan type, be sure to take advantage of any matching opportunities your employer provides. This means that your employer may put one or more dollars in for every dollar you invest up to a certain amount.
Since most retirement plans have contribution limits, index funds are another option if you have additional money to invest. These can include a mix of stocks and bonds.
Index funds are made up of a diversified set of stocks to minimize risk, and they usually have low fees, making them ideal for investment. You can easily invest in index funds by opening an account with an online brokerage firm. Be sure to speak with your financial advisor about the best investment option for you.
Investing in real estate is another option and can often provide passive income.
There are a few ways to get into real estate investing. One way is to purchase a house, condo or townhome and rent it out for monthly income. This option requires some time and funds to take care of any property issues that may arise, making it more of an active investment strategy.
Another option, especially if you own multiple properties, is to have a management company handle renting and maintaining your properties for a fee. This is more passive, albeit slightly more costly, as it requires paying a third-party company to manage your assets.
A newer way to invest in real estate is through crowdfunding investments. There are different platforms available that let you invest in real estate with others. This can be a good option if you do not have the capital to purchase a property and want a hands-off approach. It can also allow for diversification.
Common Investment Opportunities for Doctors
In addition to investing in the options above, there are some additional physician investment opportunities commonly to build wealth.
Buying into an Established Practice
When taking a job at a practice, there may be an option in the employment contract to eventually buy into the medical practice. This may be done through a financial buy-in, simply working there and having “sweat equity,” or a combination of the two.
Buying into a medical practice allows you the opportunity to earn an income and receive dividends. This additional money can be used to fund retirement accounts and build savings more quickly. Furthermore, equity in a practice can be a substantial asset that can then be sold upon retirement.
Owning a Medical Business
Labs, urgent care centers, and surgery centers are just some businesses that may serve as investment opportunities for doctors.
However, one caveat to be aware of is that doctors must follow certain laws that limit patient referrals to establishments they are invested in.
Tips for Investing
No matter which investment opportunities for doctors you pursue, here are some tips to help increase your net worth.
It’s essential to diversify and maximize your investing opportunities. This guide provides many investment options for doctors, and you may choose to pursue more than one.
Live on less
Reducing expenses and living below your means allows for a higher savings rate. Money should be saved for retirement, future goals, and an emergency fund.
Reduce your student loans
Paying off loans helps to increase your savings rate as well as your money available to invest. If you have significant student debt, medical school student loan refinancing may be an excellent fit to help you pay off your remaining balance more efficiently.
Don’t succumb to lifestyle inflation
If you were living comfortably on the salary you received during residency, try to maintain a similar budget going forward. By avoiding lifestyle inflation, you can contribute more of your income to paying down debt and investing.
It may seem challenging to invest during residency with an average medical resident salary of $64,000, but if you can begin investing, it will allow more time for compounding interest.
Research and read investing books for doctors
Continue learning about investing by seeking out investing books for doctors. Many of these speak to everyday issues doctors face that are unique to the medical profession, like high debt and fewer working years.
Researching and diversifying your investment strategies, reading investing books for doctors, and maintaining a budget can help doctors develop strong financial foundations. For investing tips specific to your financial situation, speak with your financial advisor.