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Missing Out on Investment Returns

2009 until now, 2020, it’s been an impressive decade for investment returns. We recovered from a crash in 2009 and have seen impressive returns ever since. But not all of us profited – many of us missed out on these investment returns.

I had just finished residency in 2009 and had a decent chunk in my 403b from residency. If the money was invested even conservatively, I would have quadrupled my money in the past decade.

Your $100k investment in 2009 could be worth as much as $450k in 2020. Assuming that you invested in a broad, relatively safe, stock index fund.

It would have done even well in a REIT ETF such as VNQ.

But if that same money was invested in a rather conservative bond fund, your net worth would have only gone up by $50k in the past decade.

Investing Knowledge

We are all investors whether we want to or not. Any money you save in a bank account, any equity you build by paying off your mortgage, and any money you have a in a 401k – these are all invested.

Each of these investments, including your savings account or checking account, have some set rate of return. They just all happen to be quite low returns because banks know that most of us have little investing knowledge.

Since most physicians will one day be millionaires, lack of investing knowledge isn’t an option.

I don’t need to be an investing genius. I need to just make sure that I am not missing out on fair returns for the risk I’m willing to take. And my risk-profile is an accurate way for me to gauge what to invest in.

Choosing the Investment

It’s easy for me to look at the past performance of my index fund and say that it was a good choice. After all, it has performed quite well only in hindsight.

And past performance really may not be an indication of how this fund will perform in the future.

But the actual fund I invested in matters very little. It’s the investing concept which I followed. For me, this was investing in passive, low-cost, index funds. A diversified and rather low-risk way of investing.

I didn’t have to pick a stock. I didn’t have to get up early in the morning to trade. And I didn’t have to constantly buy and sell funds. I bought and I held onto the fund. And plan on holding onto them for quite a while longer.

Selling Out Early

I know a few investors who predicted a market crash in 2012, 2014, 2016, and 2018. They all sold out ahead of their incorrect predictions. Which means that they missed out on some juicy returns.

That’s the problem with individual funds – their crazy ups and downs. Yes, their returns are insanely sexier, but who can hold on for that ride?

For comparison, if you had held on to the Apple stock during the same decade, your $100k investment would be worth $3m. $3 million!

But … I am not looking for $3m. That wasn’t the goal of my investing. I wanted to preserve my wealth, I wanted to feel that my investment was safe, and I wanted to outpace inflation, and be rewarded for the risk I was taking.

Your Money Now

What’s your money invested in now? As in, what funds are you invested in? What’s your investment plan over the next decade?

Not having a plan means that someone is profiting from your money – handsomely so.

At any given moment, there are billions of dollars sitting in checking accounts and savings accounts. Sitting there idly, collecting dust, not earning a return. But making the banks richer.

Access to Cash

Having raided my emergency fund stash a few times prematurely, I know how terrible it feels to not have access to cash. So, yes, it’s so important to have enough money to get your through a few months.

But we must know exactly how big this cash cushion needs to be. 6-12 months of cash is more than enough. And only the kind of cash you need to live the cheapest life possible.

Can you live with a family member? Can you get rid of your car? Can you move to a cheaper country if you truly run out of cash? Then you only need enough cash to ride out those 6-12 months in that setting.

Don’t underestimate your friends and family helping you financially. Don’t underestimate the cash you can get from credit cards. And don’t underestimate your ability to earn some money, doing something, anything.

Passive Income for the Digital Nomad Physician

If I have $250,000 invested and I’m earning a return of around 6%, that’s $15,000 per year that goes straight in my pocket.

Living here in Spain, in Santiago de Compostela, even without any income from work, $15,000 a year, or $1,250 a month of passive income will go a very long way.

The boldest statement I can make here is that with $1,250/mo of income I wouldn’t have to ever earn any more money. A 6% return on my investment from that size portfolio could last me indefinitely.

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