As Sermo’s Medical Advisory Board Member, Dr. Ashish Rana, MD, says, “Retirement planning feels like navigating a moving target—it’s full of uncertainty and constant change.” And this is especially true for physicians, who often face fluctuating incomes and schedules.
With the right preparation, you can strengthen your position and prepare for a healthy financial future. Here’s a guide to investing for physicians, with foundational principles, financial investing strategies and passive income ideas.
The starting point for doctors trying to invest
The best starting point for investing is to determine your end goal and work backward from there. How you plan to reach that goal depends on where you are in your career and how much money you have so far.
If your objective is to invest and build wealth to retire, aim for a nest egg that’s around 10 times your annual income. It needs to be large enough to withdraw 4–6% every retirement year to fund your lifestyle without depleting the principal. Experts recommend these numbers because historically viable U.S. investment vehicles have average annual returns of more than 6% across time.
For higher earners, the 4–6% withdrawal target is a more accurate metric than the 10x annual income benchmark. Put differently, one Sermo member and Anesthesiologist said, “My retirement planner says that every $1 million in savings will provide $40,000 a year as a rule of thumb.”
Retirement planning feels like navigating a moving target—it’s full of uncertainty and constant change.
Dr. Ashish Rana, MD
How doctors can build a solid financial foundation: 4 steps
Investing in assets is an important step, but if all of your money is tied up, you might not be able to fund emergencies or pay off debt. Before investing, build a solid financial foundation that lets you budget effectively and face emergencies with confidence. Here’s how:
1. Create a written budget
Gain full control over your finances as soon as possible. This means knowing exactly how much money is coming in and exactly where it’s going.
Creating and maintaining a budget is a discipline that reduces overspending, mitigates the risk of poor financial decisions, and increases peace of mind. There are apps that make budgeting easy—EveryDollar is a popular free option,n and You Need a Budget (YNAB) is an effective paid alternative.
2. Build an emergency fund
Build an emergency fund that would cover 3–6 months of basic living expenses. To ensure liquidity, place your emergency fund in a high-yield savings account with your bank. While accruing interest shouldn’t be the priority for your emergency fund, high-yield savings accounts can help combat inflation. Some institutions offer annual percentage yields (APYs) as high as 4%.
3. Pay down debt
When it comes to investment advice for doctors, most people say to start with paying off debt. Many doctors have nondeductible student loans with high interest rates, and from a net worth standpoint, high-interest debt is inherently at odds with the returns investment vehicles offer. And, considering that it takes the majority of physicians over a decade to pay down their debt, student loans markedly reduce investment horizons.
While investing is important, don’t put all of your money there first. Create a plan to be debt-free as soon as you can. A home mortgage is an exception since your residence can double as an investment—but as a general rule, don’t let your monthly mortgage payments take over your after-tax income.
4. Consider insurance
To safeguard your assets and income as a physician, consider malpractice and disability insurance:
Malpractice insurance: Approximately one-third of U.S. physicians (31.2%) have been sued. Most claims aren’t successful, but if you’re uninsured and a malpractice case is filed against you, you may be forced to compensate those patients with your personal assets. As a general rule, have the same amount of malpractice insurance as other local doctors in your specialty.
Disability insurance: More physicians use their disability insurance than you may expect. It typically costs about 1–4% of your current income and 2–6% of the monthly benefit amount.
Investment strategies for physicians to build wealth
Don’t invest in anything that you don’t understand. While it’s tempting to delegate the responsibility to a financial professional, involving yourself in all decisions gives you control over your portfolio’s growth.
Start by understanding the investment terms and strategies you might encounter:
Passive index investing: Unlike active management, passive index investing refers to buying and holding an equity that mirrors a specific market benchmark. The objective is to match market performance rather than beat it.
Value investing: Value investing is what people consider stock trading. It involves purchasing stocks based on the idea that they are undervalued and likely to appreciate to reflect their true worth.
Growth investing: Growth investing refers to investing in a company with strong projected growth rates, even if its current valuation isn’t favorable.
Dollar-cost averaging (DCA): Instead of trying to time the market, DCA refers to investing fixed amounts at regular intervals.
About 75% of U.S. millionaires attribute their financial success to regular, consistent investing over an extended period—that’s DCA. A similar number grew their wealth through passive investments in their 401(k) accounts because they offer notable tax benefits.
Many people also use the 80/20 and 90/10 portfolio approaches, where a larger percentage of their money goes into a low-fee stock index fund and a smaller percentage into short-term bonds. While it’s not a hard-and-fast rule, it’s a good place to start.
Because you likely earn a healthy income as a physician, investing a consistent percentage, like 15% of your earnings, in broad-based equities can help you build wealth over time. The S&P 500 index fund returns approximately 10% APY, on average.
Here’s an example. A cardiologist earning $357,482 annually who invests 15% in the S&P 500 would accrue approximately $5.5 million over 25 years. Similarly, if a part-time family medicine doctor who earns $120,000 invests 15% in the same equity, they accrue $1.5 million over 25 years.
How to generate passive income as a physician
According to a Sermo survey, nearly half (47%) of physicians earn some form of passive income. Passive income primarily refers to the returns from interest-bearing and/or dividend-paying assets, but it can also mean income-generating assets that require little manual effort. Real estate, low-touch businesses, and affiliate marketing fall into this category.
Beyond funding your nest egg, building passive income streams can add a layer of financial security in retirement. Here are some examples:
Real estate
There are three primary real estate investment categories: single-family, multi-family properties and commercial properties.
Generally, single- and multi-family properties are the most suitable categories for those wanting a passive side income. From the standpoint of minimizing your time investment, single-family properties tend to be the most favorable because you’re responsible for managing less tenants to generate rental income.
Real estate can be a sound investment asset. Just be mindful of the potential risks, including illiquidity, regulatory changes and market volatility.
Low-touch business
About 39% of Americans have side gigs, including low-touch small businesses. Low-touch business models are often inherently scalable and rely on automated systems. Just keep in mind that most, if not all, businesses require an initial and unspecified period of dedicated effort to achieve a strong product-market fit and the capacity to scale.
Physicians don’t always limit their low-touch businesses to the medical field. One Sermo member and Cardiologist sells collectibles on eBay, and a Pediatrician and Sermo member breeds and races thoroughbred horses.
Affiliate marketing
If you have a website or social media platform with strong viewership, you can earn a passive income through affiliate links. If a user on your platform clicks an affiliate link and then completes a specific action—like purchasing a product, subscribing to a newsletter or downloading an app—you earn a commission. This commission comes at no cost to the user.
You can become an affiliate by partnering with companies directly or joining an affiliate network that connects you with brands.
At Sermo, we offer a base rate of $20 or more for every new verified physician who signs up through affiliates. If you have an engaged audience of healthcare professionals, let’s connect.
Sermo is the world’s largest online network for physicians. It’s a platform where doctors discuss topics that matter to them and their patients—including speaking candidly on investing. One Sermo member and ER doctor weighed in on the conversation, saying, “I am 65. My wife and I live on $50,000/year with no problems. It all depends on what makes you happy. My ‘rich doctor friends’ are not doing any better with more money. We are worth over $4 million, but so what?”
