The beauty and challenge of investing is that there is no single ideal portfolio. Do you keep all of your investments in equities or split the difference based on your age? Is there a better formula, similar to how we estimate peat heart rate during exercise (220 – Age = maximum heart rate)? Or do you go against the grain and just throw all of our investments into real estate?
Just as how there is no single method to pass your boards, there is no single solution that we should all follow to invest our earnings. The winning portfolio is the one that leaves you with adequate funds during your entire withdrawal timeline. This element of unknown is why many of us choose to prolong our working career. I hope that I won’t have to do the same.
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How did I design my investment portfolio?
I’m embarrassed to say that I started late in the finance game. I blame my shortcoming on working in a conservative field that has an overly long vesting period. Medicine is one of the most conservative careers out there. There is nothing radical in becoming a doctor. You study hard in college, take your MCAT, and apply for medical school. Rinse and repeat during every step of your medical career. Once you master the basic skills and keep working hard (very hard), you can really become a kick-ass doctor. You just have to trade over a decade of your life to do it. By the time I was studying for my USMLE, @MillenialMoney had already started his journey to make millions.
Finance, on the other hand, is full of uncertainty. Sure, there is a science to it, but I wasn’t bright enough to open a open on the subject or read a blog or two. I spent my waking hours learning how to treat prerenal azotemia. The problem was that I did not realize how important the financial aspects of medicine were. I had a negative net worth with zero cash flow during medical school. Someone in that situation isn’t like to take too many chances.
The moment I started earning minimum wage as a resident, I bought individual stocks. The stupid way. I bought stocks that were at their 52-week high and ready to tumble. Tumble like the time you decided to teach yourself how to ski at age 30 by watching some Youtube videos. I bought stocks without knowing what a stock really was.
That’s right. Indiscriminate stock purchasing marked the birth of the Smart Money MD investment portfolio.
The current Smart Money MD portfolio.
Fortunately I had so little disposable income that the individual stock purchases didn’t probably only set me back a year or two in the grand financial scheme. Over time, I did begin to index and bought funds that my employer 401k offered. With job changes came different options, and hence, the current Smart Money MD portfolio:
Those of you investment buffs will see that there is a bit of redundancy in the portfolio. Fidelity’s FSTVX fund essentially mimics the total stock market while Vanguard’s VINIX follows the S&P500. Both of these funds already invest in Berkshire stock, which I have purchased separately. In fact, most of the individual stocks that I hold are replicated in the index funds! Live and learn.
What do I intend to change in the portfolio?
The Smart Money MD portfolio is tilted towards equities, which has made 2016 a great year in growth. However, these bull runs don’t last forever. Eventually everyone will need and should have a means to temper these unsustainable runs. I have been more interest in short-term CD’s over bonds as fixed sources of income, although tax-free municipal bond funds also seem to be appealing.
The downside of CD’s is that they are taxed as ordinary income. For high-income professionals in the growth phase, this means paying taxes at the marginal rate. At the current interest rates, one would be lucky to keep up with inflation in fixed assets. Not bad, but also not great.
Other options I’m currently considering:
- Surgical center investments. Yes, as a doctor all sorts of investment opportunities are thrown at you. Doesn’t mean that they are great, but they can be a great way to generate ancillary income. Some of these investment opportunities really seem too good to be true (and some are), but they are interesting propositions to entertain.
- Real estate. Who doesn’t like a great flip story? Or a cash flow opportunity in a rental property? Up until now, I have only been interested in REITs as a way to get into the real estate market simply because anything else appears to be too time consuming. Fortunately there are additional startups and services that allow investors to purchase property (or shares of property) after vetting their location and potential growth options. I guess these startups are an in-between for busy working people.
- Dividend portfolios. This is more of a variation of handpicking equities that produce some higher dividends. We’ve seen our share of portfolios with hand-picked high-yield dividend stocks like with @DvdndDiplomats. Very interesting way to get more involved with individual stock picking. However, I have been loathe to spend my free time reading about individual stocks.
How much should doctors even care about in their investment portfolios?
A good number of my colleagues are loyal users of Roboinvesting services like Betterment, Personal Capital, and to a lesser extent, Motif. I personally only use Personal Capital for tracking my expenditures and investments mainly because I didn’t feel that I had enough disposable income to invest when I started my first job. However, our needs change over time and I might reconsider in the future.
You might also like: A Financial plan for busy people.
I think that Roboinvesting isn’t a horrible idea. It actually sounds like a great idea (Note: no financial interest in the mentioned companies). Most doctors aren’t going to retire early, so hyper-saving isn’t the goal. I don’t expect every doctor to map out her investments in multi-page spreadsheets, and you don’t have to do it to get rich. You just need to watch your expenses (avoid time-shares, “investment clubs”, and divorces) and keep a strong savings rate.
What suggestions do you have to diversify the Smart Money MD portfolio?