Medical professionals are always on the lookout for opportunities to grow wealth. We invest in stocks, real estate, businesses, and notes. But growing wealth without taking risk is nearly impossible. With our high incomes and potential for high savings rates, preserving wealth should be a much higher priority.
A financial advisor isn’t a person who will give you stock tips or tell you where to invest your money for maximum gains.
That job is reserved for a professional investor. Financial advisors may consult such professionals for wealthier clients but it’s not part of their routine job description.
Financial advising is hard because a lot of it is based on selling techniques. Not so much selling you specific products but selling the client on the importance of saving their money rather than spending it.
Preventative medicine is similarly difficult. Changing your patient’s habits, inspiring them to change their lifestyle, and motivating them to stay the course is exhausting.
Guidance on Investing
My financial advisor and I still discuss investment options. However, the emphasis is always on preserving wealth. Growing wealth is a natural byproduct of investing in a capitalist economy. But the returns from growth investing will be minute compared to how much money I can set aside from my income annually.
A good question to ask your financial advisor is how you can preserve the value of your accumulated wealth. That’s usually what financial advisors are most concerned with – at least those with fiduciary standards.
It’s only been in the past couple of years that I have been aware of the concept of wealth preservation. Previously, I’d only been focused on growing wealth.
I didn’t realize how difficult it was for investors to secure high returns for their clients. I assumed that as long as you are a professional investor then that’s what you could achieve.
Shit, he world of professional investing is hard. The hedge fund managers we hear about are brave and intelligent individuals and their burnout rate is way higher than those of physicians.
If you have very little money or poor financial habits, you might take on excess risk in hopes of higher investment returns. This is why the very poor in the US play the lottery. This is why many otherwise intelligent medical professionals gamble on individual stock picking.
Risk and investment returns are tied together. You can jump on new investment options such as cryptocurrencies and crowdfunded real estate investing, but the higher promised returns come at increased risk.
A good middle ground is to satisfy your desire for excess risk by exposing a small percentage of your wealth to riskier investments. It’s generally recommended to do so with around 5% of your net worth. That’s $25k from a $500k net worth.
Professional investors such, as the ones hired by pension groups, endowments, and the wealthy elite, serve to grow the wealth of these entities.
If a pension plan needs to spend 4% a year to cover payroll for the pensioners, their professional investors must grow the pension by at least 5%. Growing wealth is a necessity due to the thin margins. These entities have no choice but to take on the excess risk.
Professional investors charge massive fees. Their job is to stay on top of market trends and make bets on the future. They have to move large sums of money at opportune times to make sure that their client’s wealth continues to grow.
Entrepreneurs invest in their own skills. My friend’s dad owns 60+ fast food franchise units. He has accumulated this portfolio over the past 20 years. He never grew his wealth by investing in Lending Club or mortgage notes.
He eventually invested in some real estate since that’s what fast food franchisees deal with. It was still in his area of expertise.
Entrepreneurs can become rich because they take on more risk and they leverage debt in order to grow their wealth.
Physicians & Wealth
Medical professionals earn high incomes which makes the wealth discussion interesting. We can live the same lifestyle as a median household which earns $60k/year and accumulate wealth in forms of disposable income.
Most physicians are employees. They don’t have to drum up business, handle payroll, compete in various markets, create value for customers, or negotiate debt rates. We show up to work, we say ‘yessir and ‘yessam and collect a paycheck. Not that the work is easy, but it’s not the same as running Amazon or Illumina.
To grow my wealth as a physician all I need to do is contribute to my savings regularly. By spending less than I earn, I get to set aside tens of thousands of dollars annually.
When you gross $300k a year then there is a lot of room for disposable funds, even after taxes and student loan payments. Setting aside $50k per year into retirement accounts will leave you with incredible wealth in the future.
Risking my wealth for the sake of 10-12% annually just doesn’t seem worthwhile.
I don’t need to take on the headache of a high portfolio risk for the sake of high returns. Preserving wealth is my priority so that I can maintain spending power in retirement.
Why suffer through massive market fluctuations? Why become the victims of greedy bankers? Why waste my day away trading stocks?
But preserving my wealth isn’t as easy as putting cash under the mattress. Understand the economy as a whole is important in order to come up with the optimal wealth preserving strategy. Inflation, taxes, lifestyle, and risk all have to be accounted for to come up with the right plan for each individual medical professional.
Investing for Wealth Preservation
My lifestyle and my particular risk profile makes me a good candidate to invest in passive index funds. In these security portfolios I have about 80% in stocks and 20% in bonds.
Future expected returns on bonds and stocks aren’t going to be astronomical but they will most likely outpace inflation.
Another 25% of my wealth is in real estate. RE has historically kept up with or slightly outpaced inflation. Together, my index funds and real estate will preserve my wealth.
Another way my wealth is preserved is by me not accessing it prematurely. If I can earn an income doing something I enjoy to cover my household spending then I will further preserve the value of my net worth – and possibly allow for some growth.