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You may not need a planner - but you do need a plan.
The recent turmoil in the financial markets does not change the fundamentals of sound investing: Develop a plan, diversify your portfolio, and be prepared to stay the course through good times and bad.
"Volatility is part of the game," says Sherman Doll, managing partner of Capital Investment Advisors in Walnut Creek, California. "I tell my clients the worst time to change your mind is when everyone else is panicking. Stay with your plan."
Tumultuous markets prompt many of the same concerns among all investors. But physicians-especially young physicians-also face investment challenges unique to your profession. Following are some key considerations to keep in mind:
Compared with many other professionals, doctors often face a shorter investment horizon. Because of the extensive education and training medicine requires, you likely don't have much disposable income before your early to mid-30s. Consequently, it's vital to start saving as soon as you can.
"I tell [young physicians] that if they want to be in good financial shape when they retire, they have to start early," Doll says. A late start means having to rely on investments with higher rates of return, which also carry more risk. "It's like relying on a 'Hail Mary' pass to win a football game," he points out. "You might succeed, but you don't want to have to count on it."
Because you are often in environments with other professionals, doctors frequently are on the receiving end of unsolicited investment tips. Most of these should be regarded skeptically, says Nan Cohen, a principal with Cedar Brook Financial Partners in Cleveland.
NO RUSH ON STUDENT LOANS
According to the American Academy of Family Physicians, 44 percent of family medicine residents enter practice with at least $175,000 in student loans to pay off. And while many are eager to pay off that debt as quickly as possible, doing so might not make the most sense from an investment standpoint, says Todd Bramson, senior partner with North Star Resource Group in Madison, Wisconsin.
He notes that some student loans carry interest rates as low as 3 percent, compared with more than 12 percent for the typical consumer credit card. In those cases, it is better to stretch out those relatively low-cost loans in favor of paying off the higher-cost credit cards.
David Schiller, an estate and tax planner in Norristown, Pennsylvania, advises clients to contribute to tax-deferred retirement accounts before focusing on repaying student loans. That's because such accounts can be funded with pre-tax dollars, thereby lowering taxable income. Paying off student loans, he says, should be a lower priority.
IS EXPERT HELP FOR YOU?
Whether to invest in the services of a financial planner is a personal decision, says Jack Valancy, principal of Jack Valancy Consulting in Cleveland Heights, Ohio. "Some people approach investing as a hobby, and it's something they enjoy doing," he says. For the do-it-yourself investor, Valancy recommends reading books on saving and investing targeted to general audiences, such as those by Suze Orman and Jane Bryant Quinn. "You want to make sure you're following fairly conservative advice, not get-rich-quick schemes," Valancy says.
If you decide to seek professional guidance, there are several key factors to consider:
Decide whether you want an adviser who charges a flat fee or is paid by the transaction.
Get recommendations from friends and colleagues, and talk with multiple advisers until you find one who seems like a good fit. Remember: It's your money, so be sure you feel comfortable with the person entrusted to handle it.
Find someone who is responsive and flexible. "Doctors don't have the free time during the day that a corporate executive might," Cohen says. "You want to find someone who can meet your scheduling needs."
Even if you choose to handle your own investments, it's useful to have an adviser review your financial goals and the strategies to attain them, Cohen says.