10 Understand tax implications
In the name of tax avoidance, physicians often make investments that ultimately leave them worse off financially than if they had paid the tax, experts say. Annuities are a common example, says Eric Dostal, JD, CFP, a financial adviser with Sontag Advisory in New York.
Sales people often pitch annuities as tax-deferred savings, he says, but investors don’t realize the extent of the taxes they’ll owe on distributions. There are ways to get out of them, Dostal says, but be sure to understand surrender charges and other fees associated with liquidating annuities.
In addition to these common mistakes, physicians should keep in mind some basic rules when it comes to money, Bernstein says. Understanding that there is someone (typically a well-financed institutional money manager) on the other side of every trade an investor makes can be humbling but is also instructive for maintaining perspective when a certain course of action seems obvious, he says.
Likewise, understanding the history and psychology of markets is key, experts say. Though Bernstein doesn’t advocate market timing, he does think investors—whether they have an adviser or not—should be aware of market cycles and exercise caution about buying stocks when they are overpriced.
The ability of an investor’s portfolio to weather market downturns may be a lot lower than the investor’s emotional risk tolerance, and vice versa, he says.
“During my medical career I found that the worst physicians were the ones who never questioned themselves and the best ones were often consumed by self-doubt,” he says. “The same is true in finance. The more confident you are, the more likely you are to be the patsy at the table.”