From Our June Guest Blogger:?W. Ben Utley, CFP?
You hopefully make more money than you spend. It?s the right problem to have but it?s a problem nonetheless.? In fact, every new dollar of savings seems to call for a new investment strategy but you don?t know where to begin.
When you ignore the problem. cash piles up in your checking account. Forty thouand?eighty thousand?then six figures. Now you?re getting nervous. If it was hard to invest a smaller sum, it seems impossible to invest more than $100,000.
Then one day, you stumble upon the headline that brought you here, hoping to find the answer. And if this were any ordinary article, you might be well on your way to making the same mistake that most of your colleagues have made at least once in their careers: they pile into a hot investment touted by the media.
First they buy it. Then they watch it drop like a rock. And months later, when the promised results fail to materialize, they sell everything and feel stupid.
It gets worse as the cash continues to pile up and your question goes unanswered?? ?Where do I put my money now??
The best headlines and the best investment strategies have two things in common: there?s nothing new about them, and they work. Keep reading and I will share three investment strategies you can use over and over again, decade after decade, to make your savings last, and make this the last time you fall for a tricky headline.
1.? Stop trading stocks. Start owning markets.
I know you?ve heard stories in the breakroom about how your colleague?s latest stock pick shot up 147% or how he nabbed a tax-free bond paying five full percentage points above average.
Sounds like he?s making a killing, right?
Not exactly. Chances are good he?s gotten killed on plenty of trades but physician culture won?t allow him tell you about his blunders. I?ve seen plenty of doctors who stockpicked their way to a small fortune but most started out with a much larger one.
Instead of taking a bunch of risk by betting on one stock, keep risk in check by owning a whole bunch of them? the easy way. Single stocks can go bankrupt and single bonds can go into default, wiping you out completely. Index funds, which represent ownership in hundreds if not thousands of companies, make it easy to gain instant diversification, diluting the uncompensated or ?bad? risk while retaining the ?good? risk that leads to rewards over the long haul.
Index funds are cheap. With carrying costs (a.k.a. ?operating expense ratios?) as low as 0.05%, you can buy an index fund and gain exposure to bonds or stocks around the world for a pittance. That tiny carrying cost also buys you the freedom to stop acting like a stockbroker and get back to serving as a healthcare provider.
Savvy physicians prefer mutual funds for their tax efficiency. Since they follow a buy-and-hold approach to investing, index funds are more likely to realize tax-favored capital gains and tax-qualified dividends than more highly taxed short term gains. This keeps your tax bill in check.
Stay tuned for Part 2…
About Our Guest Blogger
W. Ben Utley, CFP?, is an attending advisor with Physician Family Financial Advisors, a fee-only financial planning firm helping physicians throughout the U.S. to make a plan and get on track with saving for college and invest for retirement. Visit?Physician Family Financial Advisors Inc. ?Any advice in this article is the Author’s opinion on investing and the opportunities available in today’s stock and bond markets.