Why Doctors Should Work Less Now

May 10, 2014
Setu Mazumdar, MD, CFP

The past several years of returns have been among the best we've experienced, but many physicians aren't seeing it reflected in their portfolios. Here's a look at how an early-, mid-, and late-career physician should have done.

I’ve reviewed hundreds of accounts and portfolios for many physicians over the past several years, and no matter what age or whether they have financial advisors or not, I keep hearing the same complaint:

“The stock market is at a record high but my investment returns have been poor.”

The past several years of returns have been among the best we’ve experienced. If you didn’t get anywhere close to what I’m about to show, grab a box of tissues because you’ll be sobbing by the end of this article.

Let’s see how you should have done.

To keep this analysis simple and understandable, I’ll use just 3 investments: US stocks, international stocks, and bonds. I’ll also mix these different investments in 3 different portfolios for 3 different types of physicians: an early-career physician (less than 10 years in practice, 100% stocks), a mid-career physician (10 to 20 years in practice, 75% stocks/25% bonds), and a late-career physician (more than 20 years in practice, 50% stocks/50% bonds). The portion in stocks is equally split between US and international stocks.

First, let’s look at investment returns since the bottom of the Great Recession from March 2009 through February 2014—a period of 5 years—for our 3 doctors:

If you graduated from residency in 2009 and invested 100% in stocks you’d be up over 150% over 5 years. Even a late-career physician should be up over 80% in the same time span.

But percentages don’t tell the whole story.

Let’s say you’re making $200,000 to $300,000 in annual income and suppose you contribute $50,000 to your investment portfolio annually starting March 2009 (you are contributing that much, aren’t you? If not, shame on you!). I’ll assume the early-career physician starts out with $0 portfolio value, the mid-career physician has $500,000, and the late-career physician has $1 million.

Here’s how their portfolios grew over the past 5 years:

What does that do for you?

If you’re early in your career, you should have built up wealth very quickly and reached half-millionaire status.

While the mid-career physician might still not have enough to retire, you shouldn’t feel the pressure to pick up those extra shifts or extra call or see tons of extra patients. Better yet, pay someone else (maybe a recent residency grad?) to do your nights. If you continue saving and have a solid investment plan, you should be on track for a comfortable retirement.

The late-career physician should have catapulted to his retirement goal, and remember that in this analysis I assumed the late-career physician started with $1 million in 2009. Quite frankly, if you’ve been practicing medicine full time for the past 25 years, your portfolio should be at least $2 million by that time—or $4 million now. You should have won the game, and work should now be optional for you. If you still have to work full time, you’ve made some serious investment mistakes.

Oh, I can just hear your screams and howls to this analysis already. Those numbers look outlandish right? And it’s not fair to start at the bottom of the market right?

OK, no problem. Next week, I’ll crush your doubts altogether.