A Physician's Guide to Building a Well-Diversified Portfolio

By: Tanya Frias, CFP®, ChSNC®

Published: May 2, 2023

📂 Financial Education

Written for:

✅ Residents and Fellows

✅ Early Career Physicians

✅ Mid Career Physicians

✅ Established Professionals

As a physician, the demands on your time are immense. Securing your financial future requires a strategy that, once in place, requires minimal maintenance and offers steady growth. A key part of this strategy is building a well-diversified portfolio. Here's a primer on how to go about it:

Understanding Asset Classes

Before you start diversifying, it's crucial to understand the different types of asset classes:

  1. Equities (stocks): Stocks represent ownership in a corporation. They have the potential for high returns, but also come with higher risk compared to other asset classes. Stocks can be further divided into categories based on company size (large-cap, mid-cap, and small-cap), style (value or growth), and location (domestic or international).

  2. Bonds (fixed income): Bonds are debt securities issued by corporations or governments. When you buy a bond, you're essentially lending money to the issuer in exchange for periodic interest payments and the return of the principal amount at maturity. Bonds are generally considered lower risk than stocks, but they also offer lower returns.

  3. Real Estate: Real estate investments can offer a way to diversify beyond traditional stocks and bonds. These can include owning rental properties, commercial real estate, or real estate investment trusts (REITs). Real estate investments can provide income through rent and potential appreciation in property value.

  4. Commodities: Commodities include physical assets like gold, silver, oil, natural gas, agricultural products, etc. Commodities can act as a hedge against inflation because their prices often rise when the cost of living increases.

  5. Cash and cash equivalents: This class includes assets that can be easily converted into cash such as money market funds, treasury bills, and certificates of deposit (CDs). These are usually the least risky investments but also have the lowest returns.

Setting Financial Goals and Time Horizons

Different investment goals will require different strategies and asset allocations. For instance, saving for a down payment on a house in five years will likely require a different approach compared to investing for retirement in 30 years. The timeline for each goal can help determine how much risk you're able to take on.

Diversification and Risk Management

Diversifying your portfolio across different asset classes can help manage investment risk. The goal is to balance out potential losses in one asset class with gains in another. However, diversification does not guarantee profits or protect against all losses.

Regular Rebalancing

Over time, your portfolio's allocation can shift due to varying returns from different asset classes. Regularly reviewing and adjusting your portfolio at least once a year back to your target allocation helps maintain the level of risk you are comfortable with. 

Staying the Course

Investing is a long-term commitment. While the market can fluctuate dramatically in the short term, historically, it has trended upward over the long term. Developing a plan and sticking to it—despite market ups and downs—can be a sound strategy.

Utilizing Resources

Making informed decisions about investing takes time and know-how. Platforms like Andwise provide tools to help track your finances and plan your investment strategy. Furthermore, consider consulting with a financial advisor or planner to understand your options better.

Remember, all investing involves risk, including the possible loss of principal, and there is no guarantee that any investment strategy will be successful. Understanding your options and staying informed can help you navigate your investment journey more effectively.

This article is for informational purposes only. It is not intended to be investment advice or any other kind of professional advice. Always consult with a trusted professional about your specific circumstances before making any financial decisions.

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