Skip to content
  • About
  • Contact
  • Contribute
  • Book
  • Careers
  • Podcast
  • Recommended
  • Speaking
  • All
  • Physician
  • Practice
  • Policy
  • Finance
  • Conditions
  • .edu
  • Patient
  • Meds
  • Tech
  • Social
  • Video
    • All
    • Physician
    • Practice
    • Policy
    • Finance
    • Conditions
    • .edu
    • Patient
    • Meds
    • Tech
    • Social
    • Video
    • About
    • Contact
    • Contribute
    • Book
    • Careers
    • Podcast
    • Recommended
    • Speaking

Don’t become a poor doctor

Amarish Dave, DO
Finance
August 8, 2023
Share
Tweet
Share

Do you know what most financial advisors say about doctors and how they manage their money?

It is not pretty.

I have been in those conversations, and stereotypical doctor stories come out.

Impulsive purchases, lack of knowledge, and easy to manipulate into poor investments are just a few of the things I have heard.

Now, in our defense, we spend ten or more years studying to become a doctor and, one day after residency, are often handed a nice bonus and a large annual salary, and it is easy to fall into the trappings of living the lifestyle of a “rich doctor.” Societal pressures push us to live in a nice house, drive nice cars, and have a few flashy toys.

How do we avoid this trap?

No, it does not mean you cannot have nice things. It means recognizing that investments are the only tangible way to build wealth and having the income from investments adds to what is likely a good income. When you combine strong earnings with a growing portfolio, you have both the ability to retire early and can enjoy more luxury while in your working years because the power of compounding growth and tax-deferred or tax-free investments create financial stability for doctors.

So how do you do that?

Compounding growth: a long-term strategy

Compounding growth is a fundamental principle that every doctor should be well-acquainted with. The earlier you start investing, the more time your money has to grow exponentially. Let us consider a hypothetical scenario for a 30-year-old doctor named Dr. Smith, who invests $6,000 per year for 20 years in a Roth IRA with an average annual return of 8 percent.

After the first year, Dr. Smith’s investment of $6,000 grows to $6,480 (8 percent return). However, in the second year, the return will be calculated on the new total of $6,480, not just the initial $6,000. Over 20 years, this compounding effect will lead to an impressive final balance of approximately $288,000, solely from annual contributions of $6,000.

Tax-free investments: the benefits of municipal bonds

High-earning doctors often face significant tax burdens, making tax-free investments like municipal bonds an attractive addition to their portfolio. Municipal bonds are issued by state and local governments to fund public projects. The interest earned from these bonds is typically exempt from federal taxes and may also be tax-free at the state level if you invest in bonds from your state of residence.

For instance, if Dr. Johnson, a successful cardiologist, invests $50,000 in municipal bonds with an average yield of 4 percent, he could earn $2,000 in tax-free income annually. This means Dr. Johnson’s investment would be shielded from federal income tax, offering an advantage over taxable investments, especially in higher tax brackets.

Dividend-paying investments and the power of DRIP programs

Dividend-paying stocks can be an excellent addition to a doctor’s investment portfolio. These stocks provide regular cash dividends to shareholders, offering a steady income stream on top of potential capital appreciation. Doctors can capitalize on the power of compounding growth by reinvesting these dividends through Dividend Reinvestment Plans (DRIPs).

ADVERTISEMENT

For instance, Dr. Martinez, an established orthopedic surgeon, invests $100,000 in a dividend-paying stock with a 3 percent yield and enrolls in the company’s DRIP program. With dividends reinvested, he would earn an additional $3,000 in the first year. In the second year, assuming the stock price remains constant, he would earn dividends not only on his initial $100,000 but also on the $3,000 in dividends from the first year. This compounding effect could significantly enhance his wealth over time.

Doctors can create financial stability by understanding the power of compounding growth, utilizing tax-free investments like municipal bonds, and taking advantage of dividend-paying stocks with DRIP programs.

It is important to remember that investing involves risk, and seeking advice from a qualified financial advisor is essential. By combining a good financial advisor with your own financial education, doctors can be empowered investors in their own financial future.

Amarish Dave is a board-certified neurologist with over 20 years of experience in both neurology and active stock investing. In addition to his medical career, he holds a background in business from the University of Michigan and has successfully passed the SIE exam administered by FINRA. Dr. Dave is founder, FiscalhealthMD.com, a website dedicated to educating doctors at all stages of their careers, ranging from residents to retirement, about financial planning.

Prev

The secrets of shoulder bones unveiled

August 8, 2023 Kevin 0
…
Next

Residency reshaped: the courageous journey of switching specialties

August 8, 2023 Kevin 0
…

Tagged as: Practice Management

Post navigation

< Previous Post
The secrets of shoulder bones unveiled
Next Post >
Residency reshaped: the courageous journey of switching specialties

ADVERTISEMENT

More by Amarish Dave, DO

  • The doctor’s guide to dividend wealth: Building a resilient portfolio with smart investments

    Amarish Dave, DO
  • What to put in Roth vs. traditional IRAs: It can make big differences

    Amarish Dave, DO
  • How to select the right mutual funds for your goals

    Amarish Dave, DO

Related Posts

  • Why building your social media following is critical to your practice’s success

    Sheila Nazarian, MD
  • Osler and the doctor-patient relationship

    Leonard Wang
  • Doctor, how are you, really?

    Deborah Courtney
  • Be a human first and a doctor second

    Sarah Murad
  • International medical graduates ease the U.S. doctor shortage

    G. Richard Olds, MD
  • A vow to never become a robot doctor

    Lauren Joseph

More in Finance

  • Decoding your medical bill: What those charges really mean

    Cheryl Spang
  • 5 blind spots that stall physician wealth

    Johnny Medina, MSc
  • The most overlooked skill in medicine: contract negotiation

    Cynthia Chen-Joea, DO, MPH and Peter Baum, DO
  • The business lesson new doctors must unlearn

    Stanley Liu, MD
  • The hidden impact of denials on health care systems

    Diana Ortiz, JD
  • Why physicians are unlike the “average” investor

    David B. Mandell, JD, MBA
  • Most Popular

  • Past Week

    • Forced voicemail and diagnosis codes are endangering patient access to medications

      Arthur Lazarus, MD, MBA | Meds
    • How President Biden’s cognitive health shapes political and legal trust

      Muhamad Aly Rifai, MD | Conditions
    • The One Big Beautiful Bill and the fragile heart of rural health care

      Holland Haynie, MD | Policy
    • America’s ER crisis: Why the system is collapsing from within

      Kristen Cline, BSN, RN | Conditions
    • Why timing, not surgery, determines patient survival

      Michael Karch, MD | Conditions
    • How early meetings and after-hours events penalize physician-mothers

      Samira Jeimy, MD, PhD and Menaka Pai, MD | Physician
  • Past 6 Months

    • Forced voicemail and diagnosis codes are endangering patient access to medications

      Arthur Lazarus, MD, MBA | Meds
    • How President Biden’s cognitive health shapes political and legal trust

      Muhamad Aly Rifai, MD | Conditions
    • Why are medical students turning away from primary care? [PODCAST]

      The Podcast by KevinMD | Podcast
    • The One Big Beautiful Bill and the fragile heart of rural health care

      Holland Haynie, MD | Policy
    • Why “do no harm” might be harming modern medicine

      Sabooh S. Mubbashar, MD | Physician
    • The hidden health risks in the One Big Beautiful Bill Act

      Trevor Lyford, MPH | Policy
  • Recent Posts

    • Beyond burnout: Understanding the triangle of exhaustion [PODCAST]

      The Podcast by KevinMD | Podcast
    • Facing terminal cancer as a doctor and mother

      Kelly Curtin-Hallinan, DO | Conditions
    • Online eye exams spark legal battle over health care access

      Joshua Windham, JD and Daryl James | Policy
    • FDA delays could end vital treatment for rare disease patients

      G. van Londen, MD | Meds
    • Pharmacists are key to expanding Medicaid access to digital therapeutics

      Amanda Matter | Meds
    • Why ADHD in women requires a new approach [PODCAST]

      The Podcast by KevinMD | Podcast

Subscribe to KevinMD and never miss a story!

Get free updates delivered free to your inbox.


Find jobs at
Careers by KevinMD.com

Search thousands of physician, PA, NP, and CRNA jobs now.

Learn more

Leave a Comment

Founded in 2004 by Kevin Pho, MD, KevinMD.com is the web’s leading platform where physicians, advanced practitioners, nurses, medical students, and patients share their insight and tell their stories.

Social

  • Like on Facebook
  • Follow on Twitter
  • Connect on Linkedin
  • Subscribe on Youtube
  • Instagram

ADVERTISEMENT

  • Most Popular

  • Past Week

    • Forced voicemail and diagnosis codes are endangering patient access to medications

      Arthur Lazarus, MD, MBA | Meds
    • How President Biden’s cognitive health shapes political and legal trust

      Muhamad Aly Rifai, MD | Conditions
    • The One Big Beautiful Bill and the fragile heart of rural health care

      Holland Haynie, MD | Policy
    • America’s ER crisis: Why the system is collapsing from within

      Kristen Cline, BSN, RN | Conditions
    • Why timing, not surgery, determines patient survival

      Michael Karch, MD | Conditions
    • How early meetings and after-hours events penalize physician-mothers

      Samira Jeimy, MD, PhD and Menaka Pai, MD | Physician
  • Past 6 Months

    • Forced voicemail and diagnosis codes are endangering patient access to medications

      Arthur Lazarus, MD, MBA | Meds
    • How President Biden’s cognitive health shapes political and legal trust

      Muhamad Aly Rifai, MD | Conditions
    • Why are medical students turning away from primary care? [PODCAST]

      The Podcast by KevinMD | Podcast
    • The One Big Beautiful Bill and the fragile heart of rural health care

      Holland Haynie, MD | Policy
    • Why “do no harm” might be harming modern medicine

      Sabooh S. Mubbashar, MD | Physician
    • The hidden health risks in the One Big Beautiful Bill Act

      Trevor Lyford, MPH | Policy
  • Recent Posts

    • Beyond burnout: Understanding the triangle of exhaustion [PODCAST]

      The Podcast by KevinMD | Podcast
    • Facing terminal cancer as a doctor and mother

      Kelly Curtin-Hallinan, DO | Conditions
    • Online eye exams spark legal battle over health care access

      Joshua Windham, JD and Daryl James | Policy
    • FDA delays could end vital treatment for rare disease patients

      G. van Londen, MD | Meds
    • Pharmacists are key to expanding Medicaid access to digital therapeutics

      Amanda Matter | Meds
    • Why ADHD in women requires a new approach [PODCAST]

      The Podcast by KevinMD | Podcast

MedPage Today Professional

An Everyday Health Property Medpage Today
  • Terms of Use | Disclaimer
  • Privacy Policy
  • DMCA Policy
All Content © KevinMD, LLC
Site by Outthink Group

Leave a Comment

Comments are moderated before they are published. Please read the comment policy.

Loading Comments...