The financial security of many physicians was shaken by the COVID-19 pandemic, as they found themselves face-to-face with unpredictable market currents that threatened their future. However, not everyone was affected equally. Some physicians have even been able to use the market dynamics created by the crisis to improve their financial situation. Locumstory recently invited Dr. Jim Dahle, emergency medicine physician and founder of The White Coat Investor, to share his tips for securing your financial future during tumultuous times. Here are five key takeaways from Dr. Dahle.
1. Focus more on building wealth than earning income
The pandemic taught the medical community a painful lesson — income is not secure. Instead of making doctors busier, this “black swan” event saw ED and clinic volumes drop, elective cases restricted, locums docs unable to get new contracts, self-employed physicians struggling to make payroll, and employed practitioners asked to forego raises and even take “voluntary” pay cuts.
Although most physicians don’t go into medicine for the sole purpose of making money, most earn a good income. But fewer doctors are skilled at building wealth. COVID has shown the vulnerability of depending on paychecks alone to secure your future. Physicians who focus on building their wealth through financial planning enjoy greater security and enhanced enjoyment of medicine.
Financial planning improves your feelings about your job and your life. It makes you financially independent earlier and makes medicine fun again when fiscally you don’t have to practice it. It allows working fewer hours, evenings, nights, and weekends. It enables lifestyle improvements. It gives you “walkaway” money to change jobs and even professions. Every physician, says Dr. Dahle, needs to make building wealth their “second job.”
2. Create a written plan…and stick to it
“You cannot be ‘100% clinical’ and be financially successful. Bottom line, you must spend some time learning about finance and business,” Dr. Dahle says, and that includes reading books, taking courses, following a blog or two, or working with a financial planner to show you how, not to do it for you. The exception being, letting the financial planner write out your financial plan. Or you can do it yourself once you’re financially astute.
“You need a written plan,” insists the EM physician. “90% of investing questions are answered with the question, ‘What does your written plan say you should do in this situation?’”
He and his wife faced serious questions when the stock market dropped 35% in March. “Should we sell our stock mutual funds? Should we trade stocks for gold or Bitcoin?” Their plan reminded them that significant changes required a three-month waiting period. So that’s what they did. The market rebounded, and they saved themselves from misguided changes that would have cost them dearly.
3. Take advantage of government incentives
Most doctors didn’t qualify for the COVID stimulus check of $1200 per person. However, some did take advantage of the Paycheck Protection Program Flexibility Act (PPPFA), which offered loan forgiveness and freedom in how and when loans were spent. Physicians who did not use it left money on the table.
With both political parties trying to outdo the other’s generosity, physicians need to pay attention to upcoming legislative actions. A payroll tax cut has just been mandated by executive order with the possibility of a second round of stimulus checks. Other business incentives may come down the pike if the coronavirus continues to mess with the economy. Doctors should follow developments carefully and look into how they may benefit.
4. Learn how a bear market can benefit you
Again Dr. Dahle says to follow your written plan and not fly by the seat of your pants. But if you need to make purchases, say, of a new home, a vehicle, or major equipment, a bear market is the time to do it. Prices are lower. Roth conversions may also make sense, “prepaying” taxes by moving money from tax-deferred to tax-free accounts. These conversions cost less in a bear market since taxes are calculated on dollar amount converted, not the number of shares.
It might also be time to get rid of “legacy holdings,” investments you wouldn’t buy today, but that normally would be stupid to sell due to the capital gains cost of selling. In a bear market, capital gains are less or disappear altogether.
5. Think of yourself as an investor, not a trader
Dr. Dahle reminds physicians they should think of themselves as an investor, not a trader. “Don’t time the market. You are buying these assets for the next 30 years, not the next 30 minutes. Jane Bryant Quinn famously said, ‘The market timer’s Hall of Fame is an empty room.’” Dr. Dahle recommends against buying individual stocks, saying most stock-pickers, even professionals, trail the market after costs and taxes.
Instead, buy low-cost, broadly diversified index mutual funds or ETFs from places like Vanguard, Fidelity, Schwab, and iShares. And never buy leveraged inverse ETFs.
What COVID-19 has done is serve as both a wake-up call and an opportunity for physicians to shape their financial future. With due diligence, some self-education, and/or professional advice, you can create a pathway for securing the life you want and the peace-of-mind you deserve after doing so much for others.