Market investments offer an excellent opportunity for physicians to earn passive income. However, it is not always easy to determine which investments may be most profitable. As such, many physicians lean on financial planners to select specific investment opportunities. According to medical writer Dr. Naveed Saleh, MD, MS, a type of investment known as index funds may be well-suited for physicians, as they are generally low cost, easy to manage, and well-performing. They provide a wide range of market exposure with only slight portfolio changes.
Exchange-traded funds (ETFs) and mutual funds fall under the umbrella of index funds. Investopedia notes that the purpose of an index fund’s portfolio is to match or follow elements of a financial market index like the Standard and Poor’s 500 Index (S&P 500). Funds rooted in the S&P 500 Index experience returns weighted by market capitalization of intra-index stocks. According to Lewis J. Altfest, PhD, CFP, CFA, CPA, PFS, of Altfest Personal Wealth Management, index funds do not rely on a manager’s expertise, whereas non-index mutual funds choose and promote a research department, an idea, a manager, or the general management entity.
Although top quality portfolio managers provide physicians with stronger-performing investments, benefits to investing in index funds include improved performance compared with other investment channels, Altfest notes. Index funds also offer overhead costs that range from mildly lower to significantly lower than non-index mutual funds. Nonetheless, a certain element of risk exists in index-fund investments. Stock index funds are more vulnerable than both bonds and money market funds, whereas bond index funds present the same risk as bonds. Some of Altfest’s favorite index funds include Vanguard 500 Index, Vanguard Small Cap 600 Index, Vanguard Developed Markets Index, Vanguard Emerging Markets Stock Index, and Vanguard Total Bond Market Index.
With recession concerns afoot due to inflation, rising interest rates, and the recent demise of certain banking institutions, physicians may be wary of investing in the stock market. According to Altfest, recent decreases in stock prices might present a worthwhile investment opportunity for physicians who do not have a significant amount of money invested in stocks. He suggests taking a conservative approach by keeping money in stocks but not acting until the economy and bank situation are stable. Altfest also suggests maintaining a material position in Asian emerging markets and quality bonds.
As far as long-term strategies go, Altfest suggests that physicians buy and hold index funds. He also suggests that physicians add non-stock-exchange-traded real estate to their portfolio. For physicians looking to further educate themselves on index funds, Altfest recommends visiting the websites of the two largest index fund companies: Vanguard and BlackRock. Overall, Altfest notes that physicians who are especially keen on investing should consider hiring an investment advisor who offers fee-only financial advice.
Physician’s Weekly | August 22, 2023