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The key to financial success as a doctor – staying hungry

Posted on September 29, 2018January 30, 2021 by SmartMoneyMD

We all know the importance of compound interest in building wealth. The fuel for compound interest is time—the longer you are committed the greater chance your investments will grow. This applies not only to financial growth but also to essentially everything else. As a rule of thumb, the more you study for a test the better you ought to do. The longer you have practiced medicine, the more likely you will have brand recognition by the public. If you bought a few homes in remote parts of Astoria, New York in the 1970’s, your properties will still be worth a lot without any effort. Time builds. Time erodes. The key is to strike a balance.

The hungriest doctor gets the best dinner

The medical training environment can make even the most satiated student hungry. I’ve witnessed, during medical school, a seemingly mundane presentation on bezoars evolve into a history lesson on surgical management of gastrointestinal obstructions to the cocaine addictions of William Halsted. That’s right. This five-minute presentation after morning rounds probably took an all-nighter to prepare. I sure felt sorry for the student who had to present a topic after this gunner.

The longer you can stay hungry, the higher the chance you can achieve your goals. There are studies on successful people, with the most successful people having characteristics nearing hypomania and insomnia. If you are in that category, you are engineered to be highly productive. The rest of us normal people will undoubtedly run out of gas if we operate at 110% all of the time.

If we want to become financially successful, we really need to tap into that hunger and stick with the plan as long as possible.

Financial success is multifactorial

We already have the formula for financial success—spend less than you earn. If we can stay hungry on both our earning and savings power, we can accelerate toward financial freedom sooner.

Staying hungry on your earnings is not easy. Early into your career as you are still mastering the clinical routines, nuances in the workplace, and billing terminology of your work, you are hungry. Everything is still new and hopefully challenging. Most of us in this period are building our practices and are building up to our earning potential. Eventually your routine becomes routine. Perhaps you max out on your earning potential at your job, or worse yet, start earning less. For instance, Hospitalist medicine is one field that often plateaus early in one’s working career and become dependent upon quality metrics for bonuses. If you are finding that you are losing your hunger for earning, it’s time to figure out how to continue your financial success.

You could explore secondary responsibilities in your existing job, like participating in quality review committees. Sometimes these extracurriculars come with certain stipends—more money in the bank. Alternatively you could start exploring alternative income streams to build upon your income.

One of my colleagues decided to cut back on his work schedule to four days a week. This was a means to reduce exposure to stress in the workplace, combat burnout, and prolong his overall working career. Due to logistics in his work situation his income dropped by more than 20% for going down to a 0.8 FTE, but he is much happier. Doing so will likely prolong his working career by at least another five years—five more years of working income to help build the retirement fund.

On the savings front, it is easy to loosen the reins as we build our net worth. Maybe we decide to upgrade to a nicer car when we hit our first million, or a larger house when we hit two. Junior might need to enroll in private school or join the lacrosse team. One method to remain focused on saving is to stick with your financial plan.

Creating a financial plan is one of the fundamental steps in achieving financial success. Part of the plan should include how much of your income you intend to allocate to savings. As long as you meet your savings goals, you can feel less guilty about making larger purchases. As your income grows with your career, you can adjust your expenditure guidelines in your financial plan.

There’s really no rocket science in financial success as a doctor. Focus on your career. Create a plan for success. Stick to the plan, and modify as needed. It doesn’t matter if the plastic surgeon in your hospital is getting rich from real estate ventures or time shares. Getting rich doesn’t have to be sexy.

Doctor financial mistakes involving children

Posted on September 8, 2018January 30, 2021 by SmartMoneyMD

We all want the best for our kids. My parents made sacrifices in their lifestyles in order for me to have a better life, and it’s natural to want to pay it forward. As physicians, we are fortunate to be able to provide reasonable financial support for our children. What most of us actually are short on is availability and the time to spend with our family and friends. However, we do have limits on our earning potential. It’s easy forget that a six-figure salary doesn’t mean unlimited wealth to fund everything that your kids want. The following are some of the instances that ache my heart when I see them recur in my colleagues (and myself).

You might also like: Rookie mistake – letting children thwart your retirement plans

Buying too much for your kids

I’ll admit it. I’m guilty of judging others. I’m also susceptible to being judged. I make financially imprudent decisions too. I try to learn from them as much as possible. What does irk me, however, is when otherwise intelligent people correctly identify bad decisions yet still jump into the pit of flaming tar. When they finally climb out, they jump right back in. Here’s a recent conversation I had with one of the local doctors:

Me: How was your weekend?

Colleague: Good. Just getting my son ready for school (son is in the 4th grade)

Me: Yeah, I can’t remember how stressful it was for me or my parents back in grade school.

Colleague: Well, I had to get <son’s name> a new graphing calculator and a dozen pairs of new shoes.

Me: <refraining from asking judgmental questions>

I clearly remembered when I got my graphing calculator in high school, and it was used mainly for playing games. Sure, modern times are different—fourth graders get cellphones now—but I can’t really think of any good reasons why any child this age would be mandated to have a graphing calculator. The shoe situation simply had no good explanation. Apparently it was common for the popular kids in the school to have a new pair of sneakers every month. All in, these purchases totaled around $800. This doesn’t break the bank, but we have to be cognizant of how many insignificant expenses it takes to eventually break the bank.

Start junior early for a taste of fine cars

Sending kids to expensive but perhaps impractical education

We’ve hammered the cost of education to death. There is always contention when one argues the financial merits of educational costs. There is opportunity cost to exchanging tuition dollars for something else, whether it be a real estate investment or simply index funds. To me, the straight comparison of dollars is moot. There really aren’t that many calculable career outcomes that you can use to justify the cost of education at the extreme ends of the spectrum. The decision for education has to be qualitative, as we glean immeasurable experiences that grades and career paths cannot quantify. That being said, there are limits to which you can justify throwing money at situations just because you can.

I have a coworker whose daughter was deciding between a relatively well-known school nearby and a school unknown to most people that was a two-hour drive from the nearest airport that also had a tuition four times higher. There were no statistics on what the graduates of the more expensive school actually did afterward, although one of their friends who was an alum currently works at Lululemon. My coworker’s daughter ended up picking the more expensive school.

Including the cost of travel and housing, my coworker is probably looking at the difference between $80,000 and $300,000 for four years of college. Most physicians can still “afford” this difference over four years, but it would probably place a dent into the financial buffer. It would be interesting to follow up on these situations in five or ten years to see how things turn out.

Expensive vacations that are under appreciated

Most of my medical colleagues take nice vacations (including myself). Many of them post their adventures on social media. A handful of them bring their young children (age < 5) to international trips at least once or twice a year. Most airlines require you to purchase a separate ticket for children age 2 and older, and we’ve all seen our fair share of unhappy little ones during long trips. When the vacation is over, no one is happy because junior (and the parents) just spent the last 4 hours in the emergency room in Hawaii waiting to get stitched up. By the way, dad is an ER doc but doesn’t carry 7-0 plain gut and a needle driver when he is on vacation.

How much of the Lake Como experience would a three year old, or even six year old enjoy? I’m not even sure that I understood culture enough as a teenager to truly enjoy Europe, although modern-day kids are now much more worldly than we were decades ago.

From a practical standpoint, it is understandable why families opt to take their young children on big trips even if that means shelling out a lot of money or hassle:

Where else would they go? The grandparents?
The trip is really for the parents. YOLO. It’s not helpful to have a $10 million net worth if you’re not physically fit enough to climb Macchu Picchu when that was your entire childhood dream.

No matter what our family decisions are, we need to think twice before jumping into the flaming tar pit.

Alimony and child support

No one likes to talk about alimony, yet alone deal with it. The rules governing alimony vary state by state, but if you are the higher paid spouse, expect to incur unwanted expenses. If you have any children, then expect to fork out a bit more. The good news is that most of the posted statistics about divorce in the medical profession is actually less than what the general population experiences. The feeling nonetheless stings if you have to go through it. We don’t need a lecture on alimony, but just realize that it would behoove us to avoid financial agony.

What other financial conundrums have you faced involving your children?

Who has better spending power, doctors or executives?

Posted on August 25, 2018January 30, 2021 by SmartMoneyMD

The general consensus among physicians who have a solid grasp on their finances is that they are realistic about their earnings and expenses. Ins and outs. Just like in nephrology, except a net positive in your finances is considered a win. One would expect that doctors ought to be generally conservative in their expenditures, since medicine is a generally conservative profession. But life is unpredictable, and that’s why there are so many physicians in their 50’s who still have unpaid medical student loans.

One of my guilty pleasures includes consuming stories on Refinery29, an online media outlet. Last week, I came across an article that outlines the weekly expenses of a high-income non-physician (executive director) family in Los Angeles. That’s right, down to the monthly car leases that all of the FIRE crowd cringes at. Head over if you’d like to pour through the details.

In summary, this household earns pretax combined income of $1.5 million at the age that many doctors are still getting lowball offers on their second jobs.

Acknowledge credit when deserved

Bravo!

We should all be impressed by the earning power of this couple. Some of us are secretly jealous of the relatively “normal” work hours compared to that of the average physician. You also have to realize that there are also far fewer high income opportunities like this compared to Hospitalist jobs, so not everyone can be a $1.5 million household living in the OC. There is undoubtedly blood, sweat, and tears that numbers simply cannot depict.

Big numbers make us uncomfortable

Big expenses tend to accompany big incomes. When I started earning a salary as a resident, I felt simultaneously rich and poor. There was a biweekly deposit in my checking account, but all of my student loans went into repayment mode. The ones I deferred started accruing interest, so I had expenses that did not exist previously. I was no longer eligible for student subsidized housing, so my living expenses also increased. I experienced the same transition as an attending. Do I still want to live in distressed living quarters in the questionably safe neighborhood around the hospitals? Do I want an apartment or a condominium? How about a detached house that affords a yard to enjoy? Now that I have a yard, I need a lawnmower and maybe a lawn guy. It’s interesting to see how lifestyle inflation self perpetuates.

I like my dining room ceilings to be decked out in gold

That’s one aspect that the financially independent crowd has successfully detached itself from. But big numbers may actually be less shocking that they appear. One of the line items on this expense report is the holiday expense:

Christmas shopping: $7,500

Did they mean $750 or $7,500? To take it into perspective, one of the doctors at the local hospital once declared that he spent $2,000 for Christmas activities since he had relatives from abroad visiting that year. As a hospitalist, his income was approximately $250,000. His holiday expenses were 0.08% of his pretax income. In comparison, the $7,500 Christmas shopping expenses only constitute 0.05% of a $1.5 million income! The executive director family actually spent a smaller percentage of their pretax income than the doctor!

Time to get critical

What the author of this article doesn’t mention is how long they have enjoyed the earning power. A neurosurgeon who earns $600,000 a year at age 34 is in a more precarious financial situation if he was only earning $60,000 a year ago as a resident. Given the career trajectory of executive directors, it is safe to assume that they have enjoyed at least several years worth of high earnings at age 34. Based on their numbers, it’s not clear how much total net worth they even have to their names. Are they millionaires yet? How much are they actually saving each year, and is it enough?

Assuming that the healthy earning potential continues throughout their working careers, this executive director family will do just fine. If they work until age 65, they will likely become multi-millionaires. If they wanted to quit their jobs at age 40 and move to Belize, they would still be fine if their expenses are reduced significantly.

Is there a moral to the story?

It is human nature to judge. As a physician who will unlikely ever experience the earning power of this executive director household, it is difficult to imagine how my life would be any happier with bigger numbers. When I showed this article to several of my colleagues who do have incomes in this range, they laughed at the fact that they only wished that they had the time to even spend their earnings.

Maybe it is better to strive to become an executive director with a C-suite rather than a neurosurgeon working 90 hour weeks?

Frugality does not guarantee financial independence

Posted on August 18, 2018January 30, 2021 by SmartMoneyMD

Medicine is a humbling profession in that no matter how advanced healthcare becomes, we are far from guaranteeing a particular result. Fate, as one might say, is fate. Financial temperament, on the other hand, fortunately has a more manageable learning curve. Investments really don’t have guaranteed returns, but if we invest enough relative to our income and expenses, the math inevitably works in our favor. We are all not doomed!

Ego is the enemy

What we don’t know can actually hurt us. We all are guilty of overestimating our own abilities at some point in our lives. Sometimes we pay the price. For many doctors, believing that we have more earning power than we actually do serves as our downfall. There are plenty of smart people in medicine who simply don’t acknowledge that small expenses in great numbers can overtake even the biggest of salaries. Two fancy car leases? $1600/month. Restaurant nights several times a week? $1000/month. Take-out meals for the family? Another $1000. Each one of these purchases is achievable alone, but together can whittle away a solid physician salary.

Put aside the ego, and you can get far in life.

Life can deal you the worst of hands

Sometimes even with judicious financial planning, you can even come up short. My heart aches when I hear about these unfortunate stories, but we can all learn from others. This is the case of Doctor D, who conglomeration of several of my colleagues’ financial situations. Doctor D, despite having sound fundamental financial sense, will likely protracted medical career beyond her control. Let’s delve into the details:

Doctor D, an anesthesiologist, enjoys a relatively high physician income with shorter work hours than the average physician. Her husband, armed with a business degree from a top 5 institution, commands an income after bonuses in the mid-$300k range. Along with prudent real estate ventures, their combined pretax income will hover around $700,000. They live in an expensive part of California, and will roughly have a net state and federal effective tax rate of 45%. For most people, $385,000 is a generous annual fund to work with.

Keep on hustling, and maybe you’ll get your lucky break.

Doctor D has two children, one of whom requires lifelong extensive healthcare expenses. She also has aging parents with recurring medical and lifestyle expenses that require financial support. These two factors alone will erode most of their savings:

Therapy and cognitive classes – $120,000/yr, 50% of which is covered by health insurance.

Senior living and healthcare expenses – $100,000/yr

Rough Total: $160,000

Fortunately, her parents do have some savings that offset some of the senior care needs, but if you add the rest of their expenses, there is really nothing much left to invest:

Property tax – $30,000/yr

Mortgage – $60,000/yr

Nanny – $3000/month – $36,000/yr

Food – $3000/month – $36,000/yr

Household/misc – $2000/month – $24,000/yr

Total: $186,000

Finding the escape plan

I have been wondering how one can escape from this vicious cycle. When you have fixed health expenses consuming roughly 50% of your post-tax income, you are already starting the race with one foot. Let’s look at several options that might be palatable:

Geographical Arbitrage

Those who practice geographical arbitrage swear by it. The fact is that not everyone will be able to adjust their interests to a particular region, no matter how financially advantageous living in Wisconsin is (sorry Badgers!). Doctor D would do well packing up from the OC and reducing taxes, mortgages, and essentially all other food costs. A recent article by @HiringLab shows just what you can account for with geographical arbitrage. Even if there is a comparable region-adjusted salary for Doctor D and her family, it may be tough to pick up the family and move.

Running lean on what you already have

This is the strategy that we should all employ if we need to work with what we have. Perhaps one could find a more economical nanny, groceries, or recurring daily expenses. Doctor D is in a predicament because her recurring expenses really aren’t necessarily the problem. Running leaner on these expenses may only make the family less happy without significant savings.

Find an employer who can front the medical bills

This is an interesting option. Big players in the tech industry are often known to offer generous benefits to its employees. There may be options in the healthcare industry that have similar arrangements. Large public hospitals and the Veterans Affairs are two options that come to mind. Perhaps there are options for their employees to purchase healthcare benefits that will cover the high cost of healthcare for Doctor D. In exchange, Doctor D will accept the lower salaries or perhaps more inefficient medical practice.

The bottom line

I feel badly for Doctor D. But her situation is more common than we realize. She may not be able to retire by 45, but there is still light at the end of the tunnel.

What alternatives would you suggest she take?

Doctors need to transform their careers into hobbies

Posted on August 11, 2018January 30, 2021 by SmartMoneyMD

I have some friends who love cars. It’s not like they’ve had any formal schooling on cars, but they seem to know a disturbing wealth of minutiae about them. Engine manufacturing nuances. Why the crossover line of a particular make looks like an anthropomorphic version of its brethren. To them, possessing knowledge of a topic that likely serves no benefit to meeting their basic life needs creates enjoyment in life. What is amazing is that this passion can sometimes develop into something more substantial and actually serve as a means to pay one’s rent. Who doesn’t want to be the next telecommunications major (some parents would consider this a “party” degree) who lands his own television show because he was able to carve out a niche out of millions of others wanting to do the same thing?

Somehow I doubt that my friend’s affinity to Lamborghinis will ever materialize into anything beyond a way to spend his money.

You might also like: Happy doctor basics: how to care without caring too much

Doctors, on the other hand, are in an interesting predicament. Our careers are very empowering, and have potential to confer incredibly high levels of satisfaction through healing others. Our skills can also command relatively high financial compensation. It really does sound too good to be true. What’s not to like about career satisfaction and money?

Medicine is a flawed profession

Some of my more cynical colleagues will ask, “What’s there to like about medicine?” We all have our stories about how healthcare can go wrong, and why we don’t like it. Some of us tolerate these flaws more than others, but none of us truly enjoy dealing with them. I frankly can’t figure out if healthcare systems outside of the U.S. actually have it better. Do doctors in Canada bask in a universal care system while relegating themselves to lower income? I find that difficult to believe since I know plenty of specialists in Canada who quadruple their governmental incomes through privatized means of medical practice. Those of you in the know, please sound out in the comments!

It always looks fun until it becomes your daily job.

Example Case

One of my coworkers spent his entire career dedicated to medicine. He worked long hours, missed many of his children’s milestones, and went on trips to provide healthcare to much needed parts of the world. He was very successful during his early career, and essentially practiced medicine the last decade of his career solely because for the enjoyment of caring for others. At the time of his retirement, he still was very proficient in his clinical abilities but he loathed the ancillary aspects of daily practice. Salary cuts, paperwork, meetings—all of this began to drain his vigor in medicine. Fortunately he planned his financial future well, and hung up his hat in style.

Interestingly enough, within several months of his retirement he secured a volunteer position giving care to the indigent, and ramped up his charitable work with medical mission trips that constitutes nearly full-time “work”. That’s right, no monetary compensation for doing nearly the same job that he was doing while in clinical practice.

He is living proof that medicine is a profession/calling that can produce happiness if some variables can be eliminated. By doing so, the practice of medicine essentially was transformed into his hobby.

Medicine as a calling rather than a job

There are several characteristics of medical practice that need to be met in order for it to be considered a hobby:

Ability to walk away from it without any financial or lifestyle impact
Ability to return to practice without much impediment
Freedom to choose how to diagnose and treat our patients with minimal restriction by governing entities
Practice that challenges our mind

As in the case with the retired doctor, medical volunteer work typically fits the bill. Volunteers often have limited resources but also are not restricted by regulations that govern typical medical practice. The work is challenging as it applies our medical knowledge to unfamiliar situations. Our time with volunteering is finite, so there is a clear time where we can walk away from it all.

How do we untie the shackles of our medical career? Everyone is in a different situation, and you have to figure out how how to make the best out of your situation.

You might also like: How to be a rich doctor: ride the wave

For all of us, the first challenge is to reduce your dependency on your medical career for your lifestyle. It is not the mindset that most doctors expected to have, but we are in an ideal position that allows us to do so. This isn’t a calling to get out of medicine! You don’t have to give up your decade of training to run a food truck! Remember that medical practice still gives you great financial firepower. The key is to use that to your advantage to become more financially independent. Once that becomes realized, you will realize much more flexibility in your life.

Go ahead. Take that step, and find your formula to transform your career into a hobby.

Zero expense ratio funds, and what that means to me

Posted on August 8, 2018January 30, 2021 by SmartMoneyMD

Last year I opened an investing account with Charles Schwab, mainly because they offered a total stock market index fund with an expense ratio of three basis points (0.03%). In contrast, my equivalent fund investment at Vanguard had a five basis point expense ratio (0.05%). That’s a difference of a measly $200 annually for a $1 million investment. Soon afterward, Vanguard lowered its expense ratio to 0.04%. I guess that over twenty years of investing, the numbers do add up…maybe.

The concept was fascinating enough, but the other perk about Charles Schwab’s investing account was that its checking account offered free ATM withdrawals worldwide. That’s right. If I needed Euros in Paris, Francs in Switzerland, or Won in Korea, I could get free-free withdrawals! This was essentially the cheapest way to obtain foreign currency, and I also didn’t have to worry about over withdrawing a currency for the fear of having to make another ATM transaction. Fee-free ATM withdrawals alone is a reason to have an investing account with Schwab.

Fidelity steals the show

Fast forward to last week, where Fidelity announces two of their funds with zero expense ratios. Fascinating. In the investing world, there are two crowds: (1) those who just want to come out ahead to feed their families, and (2) those who analyze everything to the finest detail. I can’t figure out which camp I belong in, since I clearly do more than dumping my earnings into some fund, but I also can’t stand making spreadsheets. Like most people, I also feed into the hype when new products become introduced. Compared to Schwab’s 0.03% expense ratio, I’d “save” roughly $300 a year on a $1 million investment by contributing to the new Fidelity zero-expense fund.

How much analysis should we put into this? Does this really change how we should invest?

Numbers aren’t everything

Expense ratios are important as long as the differences are significant enough to impact your financial future. Once we start dealing with difference of several basis points, you have to be dealing with big numbers in order to make a difference. It may be a tough sell pushing for a difference of several hundred dollars of savings per million dollars invested. It’s definitely not enough for me to move invested funds to another with a lower expense ratio.

But low expenses are only beneficial if the investments fit your financial plan. For instance, I currently invest in SCHB, a broad market ETF that roughly tracks the Dow Jones Industrial Average with an expense ratio of 0.03%. Vanguard, as far as I know, does not have any similar fund for the Dow. If you really get down to the gritty details, having accounts through multiple custodians might help if you like tax-loss harvesting (for the record, I do not tax-harvest). This is another reason why I keep my Schwab account open and active.

**Is free really that good?**

Fidelity’s new offerings aren’t necessarily going to impact my investment choices significantly, although I plan to contribute new investments to their zero-expense index funds. What’s not like about free? I already invest in their total stock market index fund, which had an expense ratio of 0.04% before Fidelity dropped it to 0.015%. What would be interesting to see is how the fee-free index fund compares to its existing 0.015% expense fund (FXTVX). How different will the tracking errors be, and are there going to be nuances with how the fund managers handle transactions that make the free fund less efficient? Only time will tell.

To my surprise, my DJIA fund tracks pretty well to the real index

The financial plan

We should always stick with our financial plan until it makes sense to change it. The success of Fidelity’s new move into zero expense ratio funds is yet to be seen, but it raises eyebrows. If I start contributing more of my assets into their management, perhaps I would be more inclined to use their services. I like their 2% cash back credit card with no strings attached. The software interface is simple to use, and I already use their services to purchase T-bills for short term growth.

I recently made a purchase order for FZROX. The success of this fund will be pitted against FSTVX (Fidelity’s Total Index Fund), and VTSAX. Let’s see how good those fund managers really are with tracking errors.

In the meantime, if you’re bickering over 0.015% you had better reconsider your local barista’s daily latte.

How not to overthink your investments

Posted on August 4, 2018January 30, 2021 by SmartMoneyMD

I cringe every time patients pull out the non-traditional medicine card, and use their experience as proof that they have discovered a natural elixir that modern medicine has selfishly kept under wraps. If you deal with direct patient care, then you’ve seen it.

“Your misaligned vertebral body is causing that searing back pain, paresthesias, and borderline paralysis. Let’s fix it by realigning that bone. Never mind the metastatic disease that’s going on.”

“Sure, those thirty nutritional supplements aren’t really medicines, and your primary care physician has personally approved every single one of them. “

Doctors, unfortunately aren’t immune to lapses in our judgment either. When ideas catch on, whether they are right or wrong, it is difficult to be convinced that there is an alternative. When these judgment errors involve financial decisions, the consequences can be be devastating.

One of the doctors who I work with really has his head in the right place. He knows that the most common money issue that doctors struggle with is spending. He is a single doctor within the first five years of his career, and has a frugal mindset. As a single-person family, he gets to call all of the shots. Expenditures, earnings, and savings. Financially this might be the second best scenario, aside from having a partner who can also contribute to the family net worth.

This guy rents a flat in a modest part of the city, drives a beater car, and has no educational debt. He has limited living expenses otherwise, and even wishes to become financially independent early in his career! He saves a remarkable 80% of his income! I wished that I had as much insight back then that he has now!

The alternative investment bug

For some reason, he is suspicious of the government, the stock market, and common real estate dynamics. It is always good to have a degree of skepticism in big brother, but we also aren’t necessarily living in a completely lawless society [yet]. He contributes to his 403b account, but that is the extent he utilizes tax-advantaged savings. Fair enough, as most employed doctors aren’t going to have that much tax-advantaged space anyway.

Where does he invest his earnings? It was fascinating to actually learn about what non-traditional options we have to keep our hard-earned cash.

Gold and precious metals

Precious metals can be traded directly on the stock exchange. The ticker symbol for gold is GLD. I suppose that precious metals are generally a stable commodity, although I don’t foresee anyone truly hitting pay dirt on these investments. He tells me that he keeps some precious metal investments in the form of jewelry, and the rest in various secondary exchange markets.

Diversifying in the wrong options can be harmful to your health

Speculative land investments

Land is plenty, and you will always be able to find someone who is willing to sell you a part of their land. Some of this land could theoretically be used to develop housing. More rural parcels can also be rented out for hunting grounds as a means to generate revenue. The true speculators are looking for land that might have valuable resources that could be harvested. Maybe your plot of land has unknown shale reserves for natural gas. Think big.

Cryptocurrency

Yes, let’s find the hottest unregulated currency and bet big. Think Bitcoin. We all wished that we had started mining Bitcoins when the concept was first discovered. Wouldn’t it have been great to have had a lot of Bitcoins when each was trading for $1000?

Local Business

Local businesses helping each other out can help communities thrive. We see this in local banks offering loans to small businesses as a way to stimulate the local economy. You can actually be the bank for local businesses by investing in their success. Perhaps one of your friends is building the next brewery in town, and needs a backer. That backer could be you.

Can you be too clever with your financial future?

My financially conscientious colleague actually invests in all of the aforementioned categories. It is very impressive that he has had the energy to research the options and pull the trigger to make the purchases. All of the investments were made using all-cash offers. Nothing is leveraged, but he also keeps a relatively narrow emergency fund which he justifies by having a stable job.

I have a difficult time reasoning through this logic. There is little liquidity or cash flow in his investments. The investments themselves are working passively through appreciation. Aside from cryptocurrency, there is a low but real chance that any of the alternative investments will result in complete loss. However, it is also possible that none of investments will amount to much. Appreciation of property, land, or even stable currencies like precious metals may never materialize. Land is only worth as much as what someone else is interested in paying.

I asked him about bonds, CD’s, T-bills and other fixed rate investments that require essentially no legwork. “Too boring, and too risky, ” he says.

Clearly there is a disconnect. Fortunately he is early in his career, and he is yet to accrue the bulk of his net worth. My take? If you’ve put in the effort to enter a stable career in medicine, you’ve won the game. There are always opportunities to be creative but it would be prudent to make sure you don’t flush your potential down the drain with diversifying too much.

Do you have coworkers who invest heavily in alternative investments?