When it comes to making financial decisions, you want to hit that sweet spot–doing all you can to make your money work for you while protecting yourself from major losses. But how do you strike that balance?
As a dentist or other medical professional, you will not only survive but thrive financially by approaching your investments, tax deductions, and retirement planning with wisdom and savvy. Here are a few tips to guide your financial decisions.
It’s easy to become anxious about the stock market when the media reports soaring highs and sudden drops. You can reduce market jitters by avoiding an investment in “the market.” Instead, invest in a few specific companies as long-term investments. Choose companies that are managed well, with solid products or services, that are shareholder friendly, and invest when their prices are not too high. It is the future values of these companies that will ultimately determine how much you profit from that investment, rather than the erratic rise and fall of a more diversified stock portfolio that parallels “the market.”
More important than market timing and more important than stock selection is the decision on how much one invests in stocks vs. bonds vs. cash, etc. No single asset allocation mix fits everyone. Each of us needs to measure our own ability to tolerate risk, what our needs are in terms of investment returns, the amount of time we have to work with before we need that income, and tax factors. As your needs change over time, so will your investment profile.
View life insurance like any other type of insurance (auto, home, etc.) - buy it if there is a risk you cannot afford to carry yourself. With life insurance, the risk is dying early, leaving a family with inadequate assets to support themselves. Term life insurance is cheap and typically fills that gap beautifully for doctors. Over the course of a doctor’s career, there comes a point when the gap is eliminated (i.e., savings will be more than enough to support the family if the doctor dies). Kids have been educated, debts are small, savings are high, etc. At that point, the risk is gone and the insurance can be cut or eliminated.
Life insurance should not be viewed as an investment. The cost is too high and isn’t offset enough by the tax shelter advantages built into policies. Your goal isn’t to reduce taxes; it’s to increase wealth.
Private practice doctors have a major advantage compared to their colleagues who are hospital employees, namely the ability to expense quasi-business/personal expenses through their practices. Of course, these must be legal deductions, but many professionals underestimate the number of items they can expense. Plan on reporting every penny of taxable income and deducting every expense you have any justification for taking. The odds of being audited remain low, but if you are unlucky enough to be selected, view the audit as a contest. Expect to give back some, but not anywhere near all, of the aggressive deductions you took.
As trusted advisors to the dental profession for nearly 50 years, Collier & Associates prides itself on delivering expert advice on these topics and more in our twice monthly newsletter. Learn more about the newsletter and receive a sample of the Collier & Associates Newsletter as well as our 2018 C&A Tax Guide for Dentists.« Back to Blog