For physicians, wealth building can be more complex than it sounds. Most attendings make high incomes, but student loan debt and other challenges can still make it difficult to cultivate long-term wealth.
In this quick video, we walk you through how to build a $1M portfolio despite those unique obstacles. Watch now to learn about key strategies, common mistakes to avoid, and how to set yourself up for success.
Transcript:
Why Physicians Should Think About Financial Milestones
So much of life is made up of milestones. Perhaps it’s turning 16 and being able to drive your own car, or maybe it’s turning 21 and being able to have a drink with your friends. For physicians, I think it’s just getting through medical school, residency, fellowship, and then becoming an attending. Certainly big milestones there.
Have you considered building up the first million dollars in your investment account as a milestone too?
I’m Ben Martinek with Bona Fide Finance, and I want to suggest this milestone to you as the next step for you to be pushing on as you progress in your financial journey.
The Delayed Financial Start Many Physicians Face
The truth is, working and becoming a physician is a rather complicated, delicate task. It takes a lot of time and energy to become one, and it costs a lot of money, and so you have a delayed start coming into life. You’ve been seeing all of your peer group maybe moving on and doing other fun things with their finances, and you feel like you’re just finally getting to the party.
So there are things that you’ve been putting off that you want to do, like maybe buying a house, or buying a car, or going on a fancy vacation, or just making all these improvements that you haven’t been able to do simply because you’ve been waiting for that magical moment of becoming an attending physician.
And now that moment’s here, and you’re maybe not so inclined to want to go and put money away and to be investing. You might be concerned about the student loan debts you’ve acquired, maybe you’ve got some credit card debt you’ve picked up, maybe there’s an auto loan or other obligations, and you want to give attention to those.
Or maybe you just don’t want to go and save any money at all because you’ve been delaying so long that you’d really just like to use the money, and you’re just banking on, “Hey, I make quite a bit of money now, I can save later.”
Why Compounding Matters for Physician Wealth Building
But the real truth is, compounding is one of the most magical things in life, and compounding is this basic notion. It isn’t just you that makes money; we could use the money that you make off of your investments to make money for you.
So that’s almost like a whole army that you can start to gather and build for yourself in which that money’s making money and it’s not dependent on you.
And with the magical benefits of compounding, we can see these investment accounts start to almost grow on their own without all of your effort.
But it kind of takes some time to really feel that compounding force to take effect, and a million dollars is kind of that nice balance to be shooting to hit because it’s like we kind of get to that moment and it’s like all the effort goes away and it just starts to steamroll itself into the future.
How a $1M Portfolio Can Grow Over Time
Things are going well; we might see your money compounding or doubling in value as often as seven to ten years, that’s without any ongoing contributions, that’s just on investment growth alone.
If you’re making contributions to the money and we have compounding, we might be seeing your money double every three to five years, perhaps even sooner depending on how aggressively you save.
And so we have this wonderful thing of being able to catch up in your situation where we can do a little bit of both. We can enjoy life today by having the house, by having the car, by having the vacations, but then we can also make sure we’re taking care of life into the future.
Tax-Efficient Investing for High-Income Physicians
Now, as a physician, you likely make a high income, that’s kind of part of the whole arrangement. It’s kind of a necessity because it took so long for you to get here, if you didn’t have the high income here, you might not have done it all anyhow. And you kind of need it in order to kind of catch up for all the years in which you spent in those books.
But with that high income comes high income tax rates, and so if we’re not being mindful of tax efficiency and saving and investing this money in a particular way, we might be introducing unnecessary tax drag into your portfolio.
And so we could be looking into accounts like 401(k)s, 403(b)s, 457(b)s, maybe deferred comp plans, 529s, IRAs, Roth IRAs, just all this whole assortment of accounts in which we can be putting money away to eliminate some of the tax consequences.
Sometimes that’s a permanent elimination depending on the account type. Other times we’re talking about tax deferral and we’re just delaying the taxes. So we have to be thoughtful as to which one we are leaning into.
Making Your First $1M Investment Portfolio a Priority
But overall the focus here is just getting started. Let’s make it a focus. Let’s make it a priority and let’s get to that milestone too because that’s when we’re really going to know that this whole gamble of becoming a physician has paid off financially.
It’s not just becoming an attending, it’s becoming an attending who has a million dollars in their investment accounts, and now any of those financial worries that we’ve previously had are starting to become a thing of the past.
So if you’re interested in achieving this milestone, please reach out to me with Bona Fide Finance. We’d love to hear from you. The best way to contact us is at hello@bonafidefinance.com.
Thanks so much for listening.