As high-income earners, doctors have the potential to build great wealth over their careers. However, with the demands of working as a physician, many doctors do not have time to effectively manage their money. Finding the right investment tool can help doctors maximize their earning potential and achieve financial freedom sooner. This article highlights the best investments for physicians.
Maximizing Tax-Advantaged Retirement Accounts
Doctors have access to excellent tax-advantaged accounts to save and invest for retirement. Contributing enough to get any employer match offered in a 401(k), 403(b), or 457 plan allows doctors to earn an instant return on their money. After maximizing any matched contributions, doctors can invest in the backdoor Roth IRAs and mega backdoor Roth options to take advantage of tax-free growth.
These retirement funds offer tax benefits while providing investment options like stocks, bonds, real estate, and private equity that may generate higher returns over time. Aggressively funding these retirement accounts early in their careers allows doctors to benefit from decades of tax-advantaged compounding returns.
Investing in The Stock Market
While doctors can invest retirement funds in the stock market, putting additional money in taxable brokerage accounts allows more flexibility to access funds when needed. The stock market has averaged 7% annual returns after inflation over the long run. Doctors should invest for the long term through low-cost stock index funds and ETFs for the best chance at solid returns.
A mixture of large-cap, mid-cap, and small-cap stock funds provides diversification. International stock funds give doctors exposure to growing global markets. For higher returns, doctors can also consider investments in sectors like technology, healthcare, and finance that may benefit from long-term trends.
With their high income, doctors can easily invest $30,000 per year or more in the overall stock market taxably while maximizing retirement account contributions. Years of investment success at this level can generate a substantial portfolio for financial independence.
How Dentists Invest Their Money
Like physicians, dentists also go through extensive training to obtain a terminal degree and license to practice. To gain financial freedom and build wealth, this is how dentists invest their money:
- Real Estate: Owning dental office space and other rental property allows dentists to generate cash flow and long-term appreciation. Many dentists start by buying the building that houses their practice.
- Peer-to-Peer Lending: Some dentists invest money through peer-to-peer lending marketplaces that provide business loans, real estate loans, and personal loans. Average annual returns of 5-8% from P2P lending provide dentists with a fixed income stream to complement stock investments.
- Equities: Dentists with surplus income invest in the stock market through a mix of stock funds, ETFs, and individual stocks, mainly in sectors like Healthcare, Financials, and Technology. Long-time horizons allow dentists to overcome market dips.
- Bonds: High-quality government and corporate bonds offer dentists stable fixed income through interest payments. Vanguard and other investment firms provide bond fund options with solid yields above inflation.
- Startups: Wealthy dentists may invest money in startups related to dental technology, services, and products as minority owners. This allows participation in the success and high returns of emerging companies in the dental industry.
To Wrap Up
With diligent savings and the right investment mix, doctors and dentists can achieve a wealthy financial future and the freedom to pursue the work and lifestyle they choose. Maximizing available retirement plans, investing in the stock market over decades, and considering other options like real estate, peer-to-peer lending, and startups may generate substantial wealth for physicians and dentists seeking financial independence.
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