The Best Investment for Middle Class Doctors

Physician's Money Digest, July 2006, Volume 13, Issue 7

BetterInvesting

BetterInvesting

Do you invest in index funds? According to some economists, they make a lot more sense than putting your money in individual stocks. Dr. James D. Miller recently made this case in his recent article in . He believes the common idea of high risk equaling high returns is only partially true. And he bases his argument on the fact that stock market investing offers two types of risk. According to the article, these are: the risk of the entire market going up or down and the company-specific risk of one particular stock doing better or worse than the market at large. He explains that markets only "compensate" investors for the first type of risk, and "the market doesn't need investors to take on the second type of risk and so doesn't compensate for it." While investors certainly can't control the state of the entire economy, they can control the second risk through diversification—in other words, broad-based index funds. The editors of noted that they don't agree with Dr. Miller, but felt he offered "a good explanation of a common argument."