I’ve written a few articles on investing for beginners and investing, in general. This is more of a summary article for a physician audience.
For the seasoned investor, you likely won’t learn anything new. But if you are just now getting serious about investing or thinking about whether you need to invest, this might be helpful.
I reached my financial goals at age 38 and had to unlearn some very bad habits. That’s why I think I’m a good person to listen to when it comes to investing advice.
Here are the questions this article would answer for my younger self
- Do I need to invest?
- What it takes to be a successful investor?
- What’s the end-goal with investing?
- How am I doing?
- How much can I earn?
- What does wealth do for me?
- What are good investment options?
- Where do I start?
1. Investing or Income
As physicians, we have a high hourly income and secure jobs to boot. And if you can find a niche in which you are happy you may not need much money invested.
I know how taboo it is to go against the grain but that’s definitely the backbone of this website. But if your financial plan is to keep earning money then why put much effort into learning how to invest?
To live a secure lifestyle as an MD/DO you might need like $50k or maybe $100k in a checking account for your emergency fund. Assuming you’ll always earn some sort of income until you die, you might be fine with a mix of savings in the last few years of work and social security.
But if you can set aside just $100k and actually invest it, assuming some conservative investment returns annually, you’ll likely end up with maybe $400,000 by the time you can no longer work.
2. Saving Money
The hardest thing about investing is that you need free capital to invest. So, you have to actually set money aside as a beginner investor. This is the most worthwhile skill which I am still trying to perfect.
Personally, my motivation was that I wanted to have an option to not practice medicine. This passion fueled my drive to save instead of spend.
Automating investing is the most brainless thing you can do. Set up an automatic transfer of $1k a month and have it automatically invested. All brokerage houses and apps let you do that.
I began experimenting with investing early on. I tried stocks, bonds, index funds, and real estate. It was pretty clear to me that investing wasn’t – it was a tool to reach a certain goal.
Until I actually got down and dirty and put my money into different investment vehicles, I really didn’t learn all that much. I lost decent money – perhaps somewhere around $6k which is nothing compared to what I’ve learned from the experience.
Experimenting with some stocks or some cryptocurrency or some bonds, why not. It’s all a learning experience; at the end of which you might realize you’re a real estate investor or speculator.
It’s just as important knowing when to buy as when to sell. Each of us has to discover our comfort level and our style. That’s the beginning part of investing which you’ll then master over the next few decades.
4. Comparing Yourself to Others
I don’t think it’s possible to compare your investment returns or your investing style to anyone else. It is such an individual thing, almost like exercising. It has to fit your style and it has to be something that makes sense to you.
I have friends with far higher investment returns but I don’t have their risk tolerance profile. Nor have I learned the same strategies they have. I do what makes the most sense for me.
It helped me early on to know why I was investing and what results I expected from my investing. As in, what’s the final goal?
5. Growing | Gambling | Preserving
As a beginner investor, you need to figure out what the eventual goal is for your investment strategy. And probably also worthwhile to know how much risk you can tolerate.
When I first started I was in the wealth accumulation stage, meaning, I was looking for growth. I wanted to save as much as possible and get as high of a return as possible without gambling. No gambling for Dr. Mo.
Some individuals like the gambling part of investing. In fact, that’s what keeps them engaged. It’s totally acceptable as long as you’re willing to take on the risk and put in the work and effort of day-trading.
Eventually, you’ll also get to the stage where you’ll have to worry about preserving your wealth. My net worth right now is high enough that I only care to preserve it. I am not trying to grow it.
6. Passive Income
I used to think that passive income was the holy grail of investing. Meaning, the goal was to accumulate as much wealth as possible so that it could maximize dividends and earnings.
I now know I can earn passive income through many different methods of investing. From rental income, stock dividends, interest on my hard money lending, to selling my stocks once they have gone up in value.
However, passive income isn’t everything. As a beginner investor, you can decide if you want to have some wealth in the future or if steady income from your wealth is more important to you.
In the US your investment returns will always be taxed, one way or another.
If you invest in a traditional brokerage account or even if you just have money in your savings account, any return you earn on that money will get taxed. And you will pay these taxes when you file your annual income tax.
In tax-advantaged accounts, such as an IRA or a 401K, you defer taxes into the future. You won’t pay any taxes on what you buy or sell until you’re over the age of 65. Only once you reach retirement age and you take money out of those accounts will you owe taxes.
I have money invested in both a brokerage account as well as in these taxed-advantaged accounts. I like to have some money that’s more accessible, hence the brokerage account.
8. Investment Types
Needless to say that there are tons of different investment types out there for the beginner investor. You can invest in individual stocks, bonds, ETFs, index funds, cryptocurrency, real estate, and private businesses.
There is the concept of investment diversification – you invest in a little bit of everything or in many different things. But I don’t think this is absolutely necessary.
Once you find that one investment type with which you feel the most comfortable with, you can certainly try to learn as much as possible about it and hone your skills.
9. Private Business
One of the best aspects of business in America is that it is rather simple to start your own private practice or your own personal business.
Start a business by opening an urgent care or a private telemedicine practice. Eventually, I build this business up and can sell it for a profit in the future.
One of the recent urgent care chains which employed me is probably being sold for several hundred million dollars. They now have over 40 different locations in the Southern California area.
10. Greed & Fear
It is easy to get into the greed cycle with investing. Investments earn you money and that money makes you feel rich and powerful. Unfortunately, this begets a little bit of greed and then greed begets more greed.
The best way to overcome this cycle as a beginner investor is to have a concrete investment plan. As in, my goal is to invest $500,000 and grow it to $1 million. Once I have this amount I stop and focus on preserving the wealth.
The more wealth I accumulate the more fear I am going to have that I will lose the money. One way to control this fear, especially when starting to invest, is to have a diversified investment plan but also have some healthy income sources.