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The same instinct that makes you a careful clinician may be the one sabotaging your financial future. Cardiologist and fiduciary financial planner Stanley Liu joins this episode to explain why physicians’ deeply trained aversion to risk becomes maladaptive once it leaves the hospital. This episode is based on his article “Physician financial risk: Balancing capacity and tolerance,” published on KevinMD.

You will learn why risk capacity and risk tolerance are two different variables, and why mistaking one for the other quietly drives bad financial decisions. You will hear why the physicians most at financial risk are those with low capacity and high tolerance, and why high-earning doctors with no debt sometimes stay stuck in toxic jobs they have the financial freedom to leave. You will also learn what questions a planner asks to surface the money scripts shaping your choices.

Listen if you have ever wondered whether your discomfort with financial risk is protecting you or holding you back.

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Transcript

Kevin Pho: Hi, and welcome to the show. Subscribe at KevinMD.com/podcast. Today we welcome back Stanley Liu. He is a cardiologist and a fiduciary financial planner. Today’s KevinMD article is “Physician Career Choices Come Down to Risk Tolerance.” Stanley, welcome back to the show.

Stanley Liu: Hey, thank you for having me back on.

Kevin Pho: All right, so let’s jump right into your article. Why did you decide to write this particular one? And then talk about the article itself for those who didn’t get a chance to read it.

Stanley Liu: Yeah, I wrote this because this actually is not really directly related to financial planning. It’s more based on conversations I’ve had with mentees and colleagues who are trying to make very difficult decisions about their career choices.

And oftentimes the choices that they’re deciding between, they fit this pattern. On one hand you have career A. It’s an acceptable opportunity. Maybe it’s the status quo that pays a decent amount. You’re guaranteed to never make less than you do today. Possibly upside is limited and not something that you’re really excited about.

And then career B is like a dream opportunity that really excites them, but also comes with no guarantees. They could make way more than they do today, but they could also potentially take a short-term pay cut and there’s no guarantee. So that’s usually some flavor of what the people I talk to are deciding between, and it’s a very tough decision for them to make.

And the reason I wrote about it is because, of course, it is financial planning adjacent, even though this really is about medicine and what we want in our careers.

Kevin Pho: Just give us some examples about some of the scenarios that we’re talking about when you give that paradigm, like the high floor, low ceiling versus kind of the more riskier path, higher ceiling, but potential lower floor. So what would be some common scenarios that you encounter?

Stanley Liu: A very typical one, Kevin, is when somebody is, let’s say, five to 10 years out of training. They’ve been in the same position for a while. They’re comfortable. They probably bought a house. They have a family that might be set. Their spouse may have an established career, that kind of thing.

They’ve laid down some roots, and now we have a situation where either there’s something that’s not quite satisfactory about that current status quo, or another opportunity comes along that’s really enticing, but the lack of guarantees they find scary, even though the upside, to your point, may be really, really high in the future.

And the decision they have to make is, are they willing to take that risk, or do they stick with what’s comfortable? And that’s really the basis of what I wrote my article about, because so many times these career decisions sort of fit this pattern.

Kevin Pho: So what would be an example of something like that? Would it be a physician practicing in a stable W-2 based income, and then they get exposed to an opportunity that from an income standpoint far surpasses that? Now, what would be a concrete example of what an opportunity like that would look like?

Stanley Liu: Yeah. So a typical example might be, let’s say, a W-2 employed doc, maybe in academics, and they get a steady paycheck every two weeks, W-2. They don’t have to think very much about it. There may be some upside in terms of RVU bonuses or something like that. But for the most part, they know what they’re going to make. They know that they’re not going to make less than a certain amount.

And then career B might be a different model where there might be a real unique opportunity. Maybe it’s a startup or a new clinic with a different model. And the income upfront may be dependent on them building a big practice. So if it’s a fee-for-service system, they may take on the risk initially as they build their practice up. And ideally, as they get more successful, they could end up making more than their current job, but there’s no guarantee of that.

Or you have practices that have innovative payment models that are not fee-for-service and they pay based on a different metric. Like, for example, if you’re joining a concierge practice and it’s based on percentage of membership fees, and your income really depends on how many members are a part of that practice, something that you may not be able to control. Those are examples of scenarios that I will see.

Kevin Pho: Now, I want to talk through, of course, working through those scenarios and the various paths and scenarios. But I want to ask you first, in general, do doctors default to the safe option? Or do you think that they default to something a little bit more risky?

Stanley Liu: You know, I don’t know if there’s literature on this, Kevin, and I don’t know if you’ve seen it. I will say anecdotally, I do tend to see doctors default to the less riskier decision. Because, as you mentioned, we’re talking about the choice of do we maximize the upside or do we minimize the downside?

And in our training, we are trained to minimize the downside to our patients. First do no harm, right? Everyone knows that. And I think because of that, we use that thinking when we’re treating our patients, and many of us, I think, will logically extend that to our own lives. We have mortgages to pay off, loans to pay off, families to feed. These are non-negotiables. We cannot put our families in a worse bind in pursuit of something that’s not guaranteed. Right? That’s, I think, how most doctors would think about that.

Kevin Pho: Yeah. So I think it’s very similar to what I’ve experienced, right? So I’m, as you know, a primary care internal medicine physician. Stable income, but then I also have KevinMD, which brings in income as well, right? But it’s not as safe, not as certain as it is for my primary care job. So then the question then becomes, am I willing to take a little bit less in my primary care job for potential higher ceiling with what I do with KevinMD? But of course, a lower floor, because what I do, of course, it can go away tomorrow, right? So I think I faced a lot of what you’re describing today.

Now, for those other physicians who are listening to us on this show, now let’s say they are given that opportunity of that higher upside, lower floor scenario. Now tell us about some of the things that they need to think about, they need to work through in order to really fully consider that option responsibly.

Stanley Liu: Yeah. One of the things that I always talk to people about is let’s imagine, let’s first define what the worst-case scenarios would be for each case. And when I talk to people about that, we usually imagine, like, it can be pretty dire. Like, I have to pull my kids out of daycare or whatever, and my wife has to, or spouse has to quit their job, whatever.

And then we go through, let’s say income was fine. We imagine a situation where the worst-case scenario was acceptable. What would you choose then? And that’s when their true passion or what really drives them, what really excites them comes up. I can see their eyes light up because now they’re free to dream.

And so one of the questions I always want to ask, now this is where I put on my financial planning hat, is what if we could create a situation where the worst-case scenario was acceptable, even if just for the short term, like less than a year? And there are a lot of ways that a lot of doctors probably could do that. We could create a reserve fund to ride out any income gaps. You could come up with both long-term investment plans, debt payoff plans that could be safe even in that worst-case scenario planning. You could do proactive tax planning to make sure you are really keeping more of what you earn. And lots of little things like that could actually make the worst-case scenario a little bit more acceptable.

And then suddenly you realize, gosh, if the worst-case scenario is acceptable, then really you’re choosing between something that has a ceiling and something that doesn’t. And I don’t know if in your own career with KevinMD whether you experienced something like this. It’s something that I, as I’m creating my own career, certainly think about. I want to make sure my worst-case scenario is acceptable, and then that makes it easier for me to go and take risks that can really increase my upside and long-term career satisfaction.

Kevin Pho: And just to put it out there explicitly, what is the common, most common worst-case scenario for a lot of physicians in this position?

Stanley Liu: It comes down to fixed expenses, is what I usually see, Kevin. Like, you have a mortgage, you have kids’ tuitions, whatever, and there’s a set monthly bill that you got to be able to make every month. And if taking a riskier path means that some months your income might dip under that, then you might be dipping into savings, then you might be in the red for a little bit. And that is scary. That’s really scary to responsible physicians who want to take care of their families and not let them suffer because of their career decisions, and I totally get that.

That’s usually what we’re talking about. In my personal case, it was when I left employee practice and I went part-time and did locums for a year while I was writing out my non-compete clause. I took a six-figure hit in income, and luckily I had done the planning so that we could absorb that six-figure hit without affecting my family’s quality of life. A lot of physicians don’t have that leeway, or they haven’t done that planning necessary to be able to treat that as an acceptable risk.

And so that’s what we’re talking about. How can we make the worst-case scenario an acceptable risk so that you have the freedom to dream bigger and to really shoot for something better?

Kevin Pho: And I can only imagine that the acceptance of the worst-case scenario changes based on that physician’s life situation and age, right? Because the calculus changes for someone, of course, with a young family, we’ve mentioned young kids several times, or if they’re just getting out of residency, versus someone, I would say myself, in a position where I’ve been practicing for 20-plus years. My kids are entering college, but I’m not paying off any more student loans anymore. I don’t have a mortgage. That calculus changes depending on that physician’s life situation, right?

Stanley Liu: Definitely. And there is both a subjective and objective component to this. I think what you’re describing is more of the objective component, the risk capacity. What is your actual financial capacity to take risk if you were to ask a third party financial planner, looking at your cash inflows and outflows and seeing how much risk could you tolerate? But there’s also our psychology, our subjective risk tolerance, and those two may not always be correlated.

We may be that first do no harm doctor both in our personal and professional lives. There’s nothing wrong with that. What I want to be able to do is really work on that objective part so that we increase that risk capacity such that even if you are the type of person who will play it safe anyway, at least it’s your choice. At least you do it knowing full well that you could always change your mind later as opposed to being forced into it because your objective risk capacity is just that limited.

Kevin Pho: So let’s talk a little bit more of that subjective emotional, psychological component. So we’ve talked about the acceptance of the worst-case scenario. Now, again, when confronted with those two scenarios, I’m going to call it the safe path versus the less safe, more risk path, what are some emotional or psychological questions that a physician needs to ask themselves when considering potentially leaving that safe path?

Stanley Liu: One question is, first, how does that change how you view yourself as a physician or as a breadwinner or the role that you play in your family? Because mentally, going from a W-2 paycheck every two weeks to going into something where you don’t know what you’re going to make the next month, or you may have irregular streams of income, that is a big mental shift.

And of course, if you have a spouse or a family involved, this is not a decision that you should do by yourself. This is a team sport. It’s not only you that has to be comfortable with it, it’s your spouse or any adult children or any other stakeholders in your family and life who will be affected by this decision. And that is a conversation that you want to make sure that you have ahead of time so that everybody is on the same page, or you might end up feeling or facing some resentment later on because you did this without considering the needs of others.

Kevin Pho: And sometimes it’s not a binary choice, right? Because someone can work part-time and still receive a W-2, yet also receive a 1099, or what you’d call the irregular income, on top of that as well, right? So there are hybrid scenarios as well.

Stanley Liu: That’s exactly right. I don’t know anything about your finances, Kevin, but I imagine that the spectrum of possibility for you in the next 10 years could be scrapping KevinMD and going back full-time clinical work, or the opposite, where you feel like KevinMD’s really taken off and you don’t need to do any clinical work, and it serves your family and your purpose better to do it that way.

There are definitely different ways that this could go for physicians trying to make this choice. And a big trap is that people sometimes feel like they have to have it figured out right now, whereas the truth is you can adjust as you go. And if you have a little bit of both, that’s the best of both worlds, where you have a little bit of stability to let you sleep at night, while still having the potential for upside that’s not guaranteed.

Kevin Pho: I love having conversations like this, and again, just knowing you from our conversations on this podcast, I think that we have somewhat similar trajectories in that we were both kind of in a traditional employed model, and you obviously are doing what you’re doing from a financial planning standpoint, and I’m doing what I’m doing with this podcast and with KevinMD, right?

So I think traditionally physicians, their career path has been very, very linear, and in having conversations like this, this really shows our audience that there is more than one way and that physicians, even though we have a lot of headwinds, we do have a lot of agency in creating the career that best fits that individual person.

Stanley Liu: That’s exactly right. A lot of us forget that we really can pick up the reins. They’re lying down in front of us, and sometimes we’ve been trained not to see them. From a financial planning standpoint, there are definitely things that we can do so that you can have a little bit more control of those reins, and that is one thing that I try to really help physicians with.

Because most of the physicians I talk to, they’re not trying to get richer. They’re trying to have more agency. They’re trying to find that autonomy that you and I are talking about, and there actually are things you can do from a financial planning standpoint that can improve that objective risk capacity, and then that can help you and your stakeholders in your life subjectively be able to surmount the fear of risk such that you can unlock a better life.

And that’s what I love doing. When I see the look on physicians’ faces when they realize those possibilities, that makes me so happy because in a world where physician autonomy is constantly under threat, this is one of the best things that you can do to build security from a paradoxical standpoint. By being able to embrace risk, you can actually have more security.

Kevin Pho: So let’s go the other way. Tell us about some of the horror stories that you’ve heard, some of the things that physicians should not do, some red flags that you’ve just seen anecdotally, some mistakes that we definitely should look out for and avoid when confronted with that scenario, the safe versus the higher ceiling scenario.

Stanley Liu: Yeah, I think there are two extremes. One is when the risk tolerance is way, way higher than the actual objective risk capacity, and then the opposite, where you really can’t take a lot more risk, and you’re just too afraid to make any changes that would really make your life better.

So that first example is a little less common, because, like I said, I think you and I have both seen that physicians tend to be more risk-averse. But if physicians were to, for example, in a fit of rage, in the midst of burnout, they were to quit their jobs without thinking about the future or without having any planning. All they know is 100 percent, “I can’t do this anymore,” and they jump off, and then the very next day they wake up and say, “All right. Let me figure out where to go from here.” That is obviously a bit of a scary type thing.

If the job market is very good in your specialty and geographic area, great. But a lot of times you want to make sure that you have a clear vision you’re running to, because what I often see people do is they jump into the next best thing because they suddenly realize, “I need a paycheck.” And that next step may turn out to be no different in terms of overall career satisfaction than what they just left. So I do see that. That’s one possibility.

The other extreme is people I know who have been in a position that they should have left five years ago. They could have. They could have easily afforded it. They could have taken a six-month sabbatical with the financial situation they’re in right now, but they just can’t stomach the idea of going without a paycheck for two weeks. And they settle for something far less sustainable. They basically choose unhappiness over uncertainty.

Kevin Pho: We’re talking to Stanley Liu. He’s a cardiologist and fiduciary financial planner. Today’s KevinMD article is “Physician Career Choices Come Down to Risk Tolerance.” Stanley, as always, let’s end with some take-home messages that you want to leave with the KevinMD audience.

Stanley Liu: I would say take some time and think, are you the first do-no-harm physician who wants the power to take smart risk when necessary? Or are you the physician who’s already dreaming of something better and you want to build the financial foundation to do so? Both are great paths to be in, and either way, the more you can do financially to build that objective risk capacity, the better you can sustain a very satisfying career. So I think I’ll leave it at that.

Kevin Pho: Stanley, as always, thank you so much for sharing your perspective and insight, and thanks again for coming back on the show.

Stanley Liu: Thank you as always for having me. I appreciate your platform.