How Busy Doctors and Physicians Can Diversify Their Investments
Even with a full calendar, physicians—like many professionals—want to build a diverse portfolio to hedge against volatile markets and to help establish financial security. However, 53% of doctors and physicians attribute a lack of financial confidence to “not having enough time to dedicate to making these types of decisions” according to Fidelity. Due to packed schedules, they might not be spending time diversifying their portfolios, checking investment mixes, or rebalancing asset allocations (like Fidelity recommends).
Luckily, there are ways, that are not too time consuming, to diversify investments, whether within an asset class, or between various different asset classes.
Just like there is more than one remedy to cure a cold, there can be more than one approach to diversify investing. Continue reading to learn about a few different approaches and the benefits of each.
Investing in low-cost index funds is a passive investment strategy that can potentially diversify your stock portfolio with less maintenance and lower management fees, compared to other types of active investments in stocks.
Former CEO of the Vanguard Mutual Fund Group, John C. Bogle, defines index funds as “broadly diversified, holding many, many stocks, and operating with minimal expenses and high tax efficiency.” And according to Bogle, that’s why investing in index funds generally works. “They're broadly diversified, which eliminates individual stock risk, and they're low cost.”
Vanguard explains that index funds generally have lower management fees and transaction costs because they hold investments until the index changes.
Often referred to as a “passively managed” fund, the goal of an index fund is to track the performance of a market benchmark as closely as possible. Like any investment, low-cost index funds have risk, require due diligence and there is never a guarantee of returns.
Investing in real estate offers physicians an alternate asset class beyond stocks and bonds. Like any investment, real estate also carries risk and there is never a guarantee of returns or preservation of capital. However, it can be a good alternative in volatile stock markets.
Recurring cash flows, appreciation potential, and lower correlation with the public markets are reasons why some investors choose commercial real estate, and it’s never been easier to access individual real estate transactions.
Companies like ours, RealtyMogul.com, connect investors to debt and equity real estate investment opportunities online through crowdfunding. On such platforms, real estate crowdfunders can access vetted transactions in just a few clicks, choose the property type, investment type, and location that make sense to them, and invest for relatively low minimum amounts. For some investors, this could be an effective tool to build a diversified portfolio backed by hard assets.
Leading crowdfunding platforms conduct thorough due diligence on transactions that go on their platform. The investment research conducted by these platforms streamlines the process but investors are still encouraged to do their own due diligence, and are provided with many tools to do so from the comfort of their home, fully online.
Investors that wish to invest primarily in stocks, but still want to enjoy some regular cash flow, can allocate a portion of their portfolio to dividend paying stocks. Dividend paying stocks are shares of companies that distribute a part of their profit to their shareholders every year, allowing their investors to benefit from regular income throughout the investment period. Investing in dividend-paying stocks means that investors potentially don’t have to wait until they sell their shares to enjoy gains.
Even if a company’s stock rises and falls, dividends can provide some cash flow in both good and bad times. David Bahnsen, chief investment officer of the Bahnsen Group, says, “They generate better returns with less volatility.”
A word of advice for busy physicians: like any other investment, investing in dividend paying stocks has risk, requires due-diligence and returns are not guaranteed. Companies can cut or stop dividend payments at any given time at their own discretion.
Automated investing is done in partnership with robo-investors—tools created to make investing easier for physicians with little time to spare. Physicians decide how to allocate their capital, and the robo-investor does the work.
Although it isn’t a traditional approach to diversifying investments, automated investing is growing in popularity. By 2020, consulting firm A.T. Kearney predicts that robo-advisors will manage about $2 trillion in the U.S. If that prediction comes true, robo-advisors would control 5.6% of Americans' investment assets by 2020.
In addition to the ease-of-use, there are also financial benefits to robo-investors. Automated investing platforms typically charge lower fees than the average financial advisor. Wealthfront, for example, doesn’t charge a fee for accounts below $10,000. For larger accounts, Wealthfront charges only 0.25%. Compared to the average 1.31% fee financial advisors charge, robo-investors are a less expensive alternative to diversification.