Smart Investment Strategies for Young Physicians
By Jared Andreoli, CFP®, CSLP®
Embarking on a medical career is a monumental accomplishment, but the journey to financial stability has its own unique challenges, particularly when faced with significant student debt and the demands of residency.
This article examines various investment strategies for young physicians beyond traditional retirement plans, offering a road map to build wealth and a solid financial future.
Using Taxable Brokerage Accounts for Flexible Growth
After you’ve contributed to your retirement accounts, a taxable brokerage account can be a powerful next step. These accounts offer an ideal way to supplement your long-term savings with added flexibility.
Unlike a 401(k) or IRA, there are no contribution limits, allowing you to invest as much as you want. You also have the freedom to invest in a wide range of assets, including stocks, bonds, ETFs, and mutual funds.
A significant advantage is the liquidity, allowing you to access your funds as needed, unlike most retirement accounts. While the earnings are taxable, you can manage these costs through smart planning.
The trade-off with using taxable brokerage accounts is that earnings are taxable. But with long-term planning such as holding investments for more than a year for lower capital gains tax rates, you can help manage those costs while keeping your money working.
Real Estate Investments for Physicians Looking to Diversify
Another popular option for doctors who want to diversify their portfolios and create additional income streams is investing in real estate.
There are two primary paths to consider:
Direct property ownership: Purchasing rental properties can provide a steady source of monthly income and long-term appreciation. However, this path comes with responsibilities (e.g., property management, tenant relations, maintenance). You can choose to handle these tasks yourself or hire a professional property manager, which will cut into your profit.
Real Estate Investment Trusts (REITs): A simpler, less hands-on option is to invest in REITs. These companies own and often operate income-producing real estate. When you buy shares in a REIT, you're essentially investing in a portfolio of properties without the burden of direct management. REITs also offer the added perk of liquidity, as they can be bought and sold on an exchange just like stocks.
Both direct ownership and REITs can complement your traditional investments and create opportunities for growth and income. However, real estate investing does come with its downsides. For direct property ownership, there’s always the risk of vacancies, property damage, and fluctuating market conditions that can affect rental income or property values. Additionally, the upfront capital required can be substantial, and the time commitment for managing properties, whether directly or through a manager, can be significant, especially for a busy physician. With REITs, while they offer liquidity and ease, they are still subject to market volatility and may not provide the same level of control or returns as owning property directly. Like all investments, real estate carries risks, and it's important to carefully assess these factors before diving in.
Tax-Efficient Investment Strategies for Young Physicians
When you invest outside of tax-advantaged retirement accounts, taxes can significantly impact your overall return. Implementing tax-efficient strategies like the ones below can help you keep more of what you earn.
Tax-loss harvesting: This strategy involves selling underperforming investments to offset gains from other investments, which can lower your taxable income. This is a powerful tool to use during volatile market periods.
Municipal bonds: If you are in a high tax bracket, municipal bonds can be an attractive option. The interest income from these bonds is often tax-exempt at the federal level and sometimes at the state level as well.
Qualified dividends and long-term capital gains: Holding on to investments for more than a year can result in lower tax rates on capital gains and qualified dividends. This simple strategy rewards patience and a long-term perspective.
Working with a fee-only financial advisor can help you structure your investments in a way that reduces your tax burden and optimizes your net returns over time.
Building Wealth While Managing Risk
Young physicians face a unique set of financial circumstances, including large student loan debt, delayed earnings, and liability exposure. Sound investment strategies like the ones below are essential to overcoming these challenges:
Emergency fund: Build a robust emergency fund to cover unexpected costs before you lock money into long-term investments. This fund should be easily accessible and large enough to cover several months of living expenses.
Adequate insurance coverage: Ensure you have sufficient insurance coverage to protect your income and assets. This includes disability insurance, which is critical for a top-earning professional whose most valuable asset is their ability to work.
Diversified investments: Always prioritize diversified investments. Spreading your money across different asset classes, industries, and geographies can help limit your reliance on any single asset or market.
Partner With a Professional Who Understands Your Needs
Investment strategies for young physicians shouldn’t stop at optimizing retirement plans. Exploring taxable brokerage accounts, real estate opportunities, and tax-efficient investment approaches can help you create wealth that’s available long before age 59½.
Don’t navigate these complex decisions alone. At Simplicity Financial, we’re here to help.
Get started by scheduling a free consultation, or reach out to us by emailing jared.andreoli@simplicityfinancialllc.com or calling 414-207-6473.
About Jared
Jared Andreoli, CFP®, CSLP®, is president and financial planner at Simplicity Financial, a fee-only RIA dedicated to helping early-career physicians conceptualize their financial picture and accomplish their financial goals. Jared specializes in devising individualized financial road maps for clients, and he loves nothing more than a full day meeting with clients who value his partnership to solve problems—big and small.
After college, Jared spent six years working as a mutual fund administrator for a large company. While he learned an immense amount about the financial world, he was missing the personal connection of working with individual clients. Combining his passion for finance and personal connection, he established Simplicity Financial in 2017.
Jared has a degree in finance with a concentration in financial planning from Western Kentucky University, along with the CERTIFIED FINANCIAL PLANNER®, CFP® and a Certified Student Loan Planner (CSLP®) certifications. Outside of work Jared enjoys cooking and traveling. He played baseball in college and still coaches occasionally. He and his wife recently welcomed a daughter, who occupies most of their time. To learn more about Jared, connect with him on LinkedIn.