Most physicians who I end up talking to tend to belong in one of two extreme camps regarding their finances: (1) those who are completely clueless about how to manage their money, and (2) those who micromanage everything down to rebalancing periodically or actively generating losses for tax loss harvesting.
Those in the first group can further be divided into: (1) those who don’t invest at all, and (2) those who just pay someone to fully manage everything. The second group consisting of the micromanagers are often hustlers in seeking out money—these are the ones who actively seek out real estate deals or other alternative investment opportunities to maximize their earning firepower.
If you devote a significant portion of your time and energy towards your finances, you will likely have a good chance of becoming financially successful. The principles are much simpler than starting a craniotomy, and a portion of financial success is related in part to luck. However, not everyone is going to be able or willing to compromise their time.
We each have our priorities for our time. Some of us are incredibly efficient with our time and able to multitask multiple simultaneous ventures, but may outsource essential tasks. Hired childcare, personal assistants, housekeepers, and landscapers are some some of the task keepers that could be recruited to handle your time when you’re negotiating deals to acquire your next skyscraper.
Some of us would rather spend more time with our children and families, even if that means not hitting a retirement net worth in the 8 or 9 figures. Others would rather vegetate on the couch after a long operating room day. There is nothing financially irresponsible about doing what makes you happy—as a physician, dentist, or any high income professional you ought to be able to sustain a comfortable living without being a miser.
However, there is no reason for anyone to be completely uninformed about finances. The bar isn’t high, and you don’t have to fully understand modern economic theory to become financially successful. Technology and others who are able to dedicate their time into money have already done the homework for us. Making your money work for us can be as simple as reading the instructions manual.
The next series of posts intend to provide you with a concise outline to get you started on investing. No B$. Simple concepts for busy people with limited time to devote away from our primary work and family. Read on.
Stock funds are your friends
Companies often sell fractional ownership in the form of stocks in order to raise capital. When you purchase a share of a company as a stock, you don’t actually own the company—you own the share of stock. This entitles you to vote in shareholder meetings and sell your shares. Sometimes companies also issue dividends periodically to shareholders. If you ultimately sell the stock at more than what you paid for it, you get a profit.
Stocks get a bad rap because everyone typically only remembers the sensational stories. Someone we know buys Tesla stock at a low price, the stock rises by an extraordinary amount, and they sell at a wild profit. Fast money. Or someone else who invests her life savings into a stock only to find that it loses 95% of its value…so she sells her stock and ends up with a huge loss.
While it is plausible for a company’s stock to plummet, it is highly unlikely for the entire stock market to collapse permanently. There are certain instances over the past century where stocks “crashed” but in every single case the stock market erased its losses soon afterward.
This is where index funds come in. These are portfolios of stocks that track performance of a certain market. There are index funds of the entire stock market, the U.S. market, and international market. Index funds are considered passive and conservative investments. There is still risk in index investing, although risk is mitigated through investments within the category the fund is designed to cover. As with any stocks, losses are only realized if you sell your shares for less than what you paid for them. So you could theoretically hold an index whose value is less than what you paid for them for years and still experience a profit if you sell high.
How to get started with index funds
We will discuss investing in taxable accounts and other basic investing concepts in the next post, but you can get started with index funds right away. If your employer offers 403b or 401k accounts, you probably have access to some of these funds for retirement investing.
When employees sign up to have paycheck withholding for their retirement accounts, the custodian (the company that manages the investment accounts for your employer) will often provide a pamphlet that we toss in the corner or in the recycling that describes all of the investing options available to participating members. Go dig that booklet out or look on the custodian’s website for details.
Most custodians will offer some index fund options. Some of these are great with low expense ratios (more on that later), and some of them are incredibly lousy.
Many of these plans also offer broadly descriptive investment options that are based on your expected working timeline. Remember that often the more intricate the options seem, you might be paying for someone on the other end to handle things.
Next time, we will discuss further concepts on indexing and basic stock market tools.