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Navigating Investment Planning: A Guide for Medical Professionals Thumbnail

Navigating Investment Planning: A Guide for Medical Professionals

Understanding the world of investment planning, particularly for medical providers like you with high earning potential, is crucial to securing your financial future. So, let's get started.

Why is Investment Planning Crucial for Medical Professionals?

As a medical professional, your focus is on improving and saving lives, often leaving little time to think about personal finances. That's where investment planning comes in. It's about strategically allocating your resources to grow your wealth over time, ensuring you can maintain your lifestyle during retirement, and potentially leaving a financial legacy for your loved ones.

Starting Your Investment Journey: The Basics

  1. Establish your financial goals: Your investment strategy should be aligned with your financial goals. This could include retirement, purchasing a home, or funding your children's education. 
  2. Understand your risk tolerance: Your ability and willingness to risk losing some or all of your original investment in exchange for greater potential returns is vital. As a general rule, higher potential returns are associated with higher risk.
  3. Start Early: The earlier you begin investing, the more time your money has to grow and benefit from the power of compounding.
  4. Diversify: Spreading your investments across various asset classes can help mitigate risk.
  5. Asset Location: Taxes play a huge role in investment return. Different vehicles are taxed in different ways, so it is important to understand both how the vehicles are taxed and where you are within the tax bracket both now and in the future.

Key Investment Options

Traditional Retirement Accounts

As a medical professional, you likely have access to a 401(k) or 403(b) through your employer. These accounts allow for tax-deferred growth, which means you won't pay taxes on the money until you withdraw it in retirement. If you're self-employed, you may consider a SEP IRA or Solo 401(k). Typically, employer accounts come with investment options comprised of stock, bond, and cash mutual funds. 

An IRA (Individual Retirement Account) is another option. Contributions are often tax-deductible, and investments grow tax-deferred. IRAs generally open up the entire investing universe for investing.

Roth Retirement Accounts

There are also Roth versions of IRAs and 401(k)s, where contributions are taxed upfront, but withdrawals in retirement are tax-free. As a high earner, it's likely prudent to focus on a tax-deferred strategy, but allocating some of your resources to a Roth vehicle may help avoid accidental tax bracket jumps during retirement. 

Brokerage Accounts

A brokerage account also allows you to invest in various securities like stocks, bonds, and mutual funds. While these accounts don't offer the same tax advantages as retirement accounts, they aren't subject to the same restrictions on withdrawals. These are great for pre-retirement goals and supplemental retirement funding.

Health Savings Account (HSA)

These are really cool accounts that let you save for healthcare expenses completely tax-free. Since it is a given that you will have healthcare expenses later in life, funding these makes a lot of sense. Be careful of overfunding, because you need enough healthcare expenses in your lifetime or risk paying penalties to gain access to your funds. An HSA also allows you to invest your contributions, making it a valuable retirement planning tool. Keep in mind you must have a high-deductible healthcare plan to qualify for an HSA.

Privately held Real Estate and/or Businesses

These investments can provide higher returns, but they also come with risks. These investments are often less liquid (harder to sell quickly), more complex, and have less regulatory oversight than traditional investments. It's crucial to thoroughly research each opportunity and it's strongly suggested to seek advice from a financial advisor experienced with these types of investments.

Navigating Investment Challenges

Investment planning isn't without its challenges. It can be hard to balance paying off significant student loans with the desire to start investing. Plus, high earners like medical professionals often face higher taxes, affecting investment decisions. Working with a financial advisor can help you create a personalized plan that fits your needs and goals.

Remember, while investing involves risks, not investing can also be a risk to your financial future. The key to successful investing is planning and patience. 

Book a 15-minute Discovery Call for assistance with your Investment Planning.

Storybook Financial is a financial planning firm determined to help those that believe in the betterment of the world around them. As a fiduciary, our service promotes unbiased financial planning with an emphasis on young medical professionals and their families. We are constantly pushing for new ways to give back to the Cystic Fibrosis community. We are based out of Iowa City | Coralville Iowa, but we serve clients nationwide with our robust virtual presence. This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.