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The Physician's Guide to Getting Started with Investing

(How to invest, what to invest in, retirement plans, investment strategies and more)

As physicians, we are fortunate to have a tried and true pathway to financial success. While it may take a while given our late financial start, thanks to relatively high salaries, most of us will get to financial independence (FI) eventually just by earning and saving. However, at Physician Side Gigs, we are big believers that we should expedite this trajectory as much as possible by ensuring our money is working for us in the background through investments. In this era of physician burnout, achieving FI is the best way to create the life in medicine that you want and practice medicine on your own terms. Since “Personal Finance for Doctors” unfortunately isn’t one of our classes in medical school, learning how to invest can be daunting and we are often targets for investment professionals. Newsflash: investing isn’t med school hard. Below, we guide you through the basics of investing to help educate doctors on how to invest, where to invest, and tax strategies to consider. Whether you want to invest money but don’t know where to start, want to learn about different retirement plan options, or are curious about different investment asset classes, we have resources for you below.


While we will try and cover investing 101 basics for physicians here, check out the learn more links in the sections below to view breakout articles that cover each topic in more detail. You can also watch replays of our free finance-related educational events. If DIY investing isn’t your thing, we still recommend reading through this guide, which will help you understand the investments being recommended to you by your financial advisor or other investment professionals and to know what questions to ask.


Disclosure/Disclaimer: This page contains information about our sponsors and/or affiliate links, which support us monetarily at no cost to you. These should be viewed as introductions rather than formal recommendations. Our content is for generalized educational purposes.  While we try to ensure it is accurate and updated, we cannot guarantee it. Rules/laws can change frequently.  We are not formal financial, legal, or tax professionals and do not provide individualized advice specific to your situation. You should consult these as appropriate and/or do your own due diligence before making decisions based on this page. To learn more, visit our disclaimers and disclosures.

Quick Links

Why Is Investing in the Stock Market Important for Doctors?


One of the greatest powers of investing is compounding growth. The stock market on average over the past several decades has averaged a return of 10%. When you continually reinvest those gains, they will also continue to grow alongside what you initially invested and continue to invest. Over time, your portfolio’s growth can far outpace how much you end up investing yourself.


The common example to show the power of compounding growth is the penny versus million dollars example. The question is simple: would you rather have $1 million dollars at the end of the month or a single penny that doubled in value every day for 30 days?


While $1 million is enticing, the penny turns out to be the better option:

  • Day 1: $0.01

  • Day 2: $0.02

  • Day 3: $0.04

  • Day 4: $0.08

  • Day 10: $5.12

  • Day 15: $163.84

  • Day 20: $5,242.88

  • Day 25: $167,772.16

  • Day 30: $5,368,709.12


The stock market doesn’t double daily, but historically according to the rule of 72, your money should double every 7-10 years depending on your returns, demonstrating the power of compounding growth over time.


Though having a million dollars may sound amazing, if it’s sitting in cash, your money is likely losing value and purchasing power every year thanks to inflation and the increasing cost of living. While saving money is great, investing that money is the key to financial success and increasing your wealth.


Compound interest calculators such as the one on the U.S. Securities and Exchange Commission website can help you see the power of compounding interest yourself: compound interest calculator. Try plugging in some numbers and looking at how your wealth will grow over time. If you like tracking your progress towards retirement, free financial tools such as those provided by Empower can help you organize your finances and demonstrate your trajectory towards financial independence in real time, as well as model out different scenarios. 

Note: Empower Personal Wealth, LLC (“EPW”) compensates us for new leads. We are not an investment client of Empower Advisory Group, LLC.

When to Start Investing in the Stock Market


Many doctors aren’t sure where along their personal financial journey they should start investing. Given the large amount of student loan debt and the fact that most of us don’t have our first real jobs until our thirties, it can be easy to put off thinking about investing until we feel more ‘financially secure’. 


The fact is, however, that waiting until you’ve finished training, paid off all of your student loans, or bought your first doctor house or car to invest your first dollars will both make you a slave to your paycheck late into life as well as risk not having enough money to retire comfortably. The less time your money has to grow, the less wealthy you will be in the long term. Since compounding growth is what makes investing powerful, time in the market is the biggest indicator of how well each dollar that you save will work to your advantage. 


If you can afford to fund a Roth IRA during residency, you absolutely should, as this is decades of tax free growth that you can take advantage of. Your future self will thank you.


The earlier you can begin the practice of investing routinely, the easier it becomes. As your income increases or you tackle high interest debt and remove payments, you can increase the amount you save and invest.


A financial windfall such as a bonus or inheritance can be a great opportunity to jumpstart your path to wealth, but don’t depend on these large lump sums as your plan for investing. Once you start bringing in paychecks, consider investing no matter how small the amount. You’ll have to create a budget based on what is reasonable for your life, but you should be consistent and stick to it, as making regular investments into the market over time is the guaranteed pathway to financial success for most physicians. 


Obviously, investing may not always be practical. When you’re in school and training, if you’re living off student loans and credit cards, investing is less important than trying to minimize the long-term debt accumulation, which compounds and works against you. 


TLDR: Don’t allow yourself to put off investing because you ‘just have to pay for x” this month. Before you know it, if you use this method, years can go by without investing and creating that nest egg that is silently marching you towards financial freedom in the background.


Learn more

How Much Should I Be Investing?


Obviously, more is better, but there is a fine line here. We are big believers that you shouldn’t be so focused on investing that you aren’t enjoying your life in the meantime. While some doctors could probably afford to save 80+% of what they make, this could also be the reason for physician burnout, and the less years that you earn money, the more you hamper your financial success in the long run.


As a general rule, we like to encourage physicians to save around 20% of your total gross household income a year between your tax-advantaged accounts and after-tax brokerage account. Maxing out tax-advantaged accounts can be a great financial goal. High-income earners may very well max out all their retirement accounts without reaching 20%, which is when they should consider investing in other investment classes.


You may have heard of the 50/30/20 rule for budgeting, which recommends allocating 50% of your net income to your fixed expenses, 30% to discretionary expenses, and 20% towards savings. 


If you live in a high cost of living (HCOL) area, you may not be able to keep your fixed expenses to 50% of your income, often cutting down on your saving potential, and unfortunately delaying your pathway to financial independence is sometimes the tradeoff for living in a HCOL region.


All of that said, you are going to want to create some long term goals that will help you determine what your short term investing goals are. You’ll want to take into consideration:

  • Your current net worth

  • How long you have until you plan to retire

  • What lifestyle you wish to maintain in retirement

  • How much discretionary income you have available

  • What passive income streams you will have in retirement (pensions, real estate, etc.)


Generally, the earlier you invest, the less you need to contribute because you have more time for growth to compound.


While this might feel like a death sentence for doctors who start their careers later than more professionals, remember that the earlier years are harder than the later years. As you pay off your student loans and your mortgage and your childcare expenses decrease, less and less of your paycheck will go towards fixed expenses and it’ll be easier to save money. 


The 4% Rule and related Rule of 25 are rules of thumb that you can use to figure out your retirement number, which can then be used to figure out how much you need to be investing now to retire at the age that you want. These rules come from data showing that a 4% withdrawal rate from your overall investment portfolio will allow you to comfortably retire without worrying about running out of funds. For the Rule of 25, look at how much you spend a year in your more expensive years, or project how much you’ll want to be able to spend in retirement. Multiply that by 25 to get your financial independence (FI) number. This is the total value of your portfolio you’ll need for retirement. 


We cover these rules in more depth on our financial independence for physicians page.


Tools like our partner Empower offer free retirement tools and trackers for long-term financial forecasting. One of our financial advisors for physicians can also help you put together a personalized financial plan to help you set an investing goal based on your desired retirement outcome.

Note: Empower Personal Wealth, LLC (“EPW”) compensates us for new leads. We are not an investment client of Empower Advisory Group, LLC.

Should I Pay Off My Mortgage (or Other Debt) Early or Invest Instead?


This is a question we often see within our physician Facebook groups and it’s worth mentioning here. If you are just starting out with investing and saving for retirement, it’s generally better to at least invest some into retirement to help diversify where your net worth is growing. 


We love the idea of being debt free, but it’s definitely a balance you need to carefully consider. Leveraging debt to invest the money elsewhere can be a great investment strategy. Houses don’t tend to appreciate to the same extent as investments, so parking all of your money in your house is not always the best strategy, especially if you are able to secure a mortgage at a low interest rate. Similarly, paying off your low interest rate student loans may not make sense from a financial standpoint.


Deep dive: learn more about the pros and cons of investing more versus paying off your house early.

Investment Options Within the Stock Market

Once you’ve got an investment goal, it’s time to figure out what to actually invest in.


Rule one of investing is never invest is something you don’t understand. Physician life is busy, and learning about investments may seem like more trouble than it’s worth. However, if you’ve been on our communities, you know we’ve heard too many horror stories of people trusting bad advisors with all their retirement savings and ending up getting scammed or investing in products with high fees and expenses that produce lower than usual returns, such as whole life insurance. It’s worth the time to learn basic personal finance for physicians.


There are several different common investment classes to consider when building your investment portfolio. They include:

  • Stocks

  • Bonds

  • Mutual funds

  • ETFs

  • Index funds

  • Target date fund

  • REITs


A good portfolio balances the risks and potential returns of different types of securities to optimize your investing strategy without leaving you in jeopardy of suffering significant losses that can hold you back from your retirement goals.


Stocks are shares of publicly traded companies, allowing you to own a stake in the company. Single stocks tend to have higher risk. Bonds, on the other hand, are like a loan to a borrower, like an IOU. They are much more stable with lower risk, but they usually come with lower returns on investments.

Comparison of stocks versus bonds


A mutual fund is a bundled set of several different stocks, bonds, and other securities. This allows you to diversify what you’re invested in to help reduce risk and minimize the number of different individual assets you have to research before investing. These are usually purchased through a fund company such as Fidelity or Vanguard.


An exchange-traded fund (ETF) is similar to a mutual fund as it is a bundled set of securities to help reduce risk and diversify. ETFs are traded on the stock market throughout the day just like stocks are, while mutual funds only change price once a day. ETFs may have much lower investing minimums, which can make them favorable to mutual funds when you first start investing.


An index fund is either a mutual fund or ETF that is set to track the performance of a specific market benchmark, such as the S&P 500. These are popular options for DIY investors as they can be closer to a “set it and forget it” option than general mutual funds and ETFs. They are a great option for ‘lazy’ investors


Real estate investment trusts (REITs) are a great way to get into passive real estate investing, especially if you don’t have a large amount of capital to purchase a property or buy into a syndication. REITs balance the risk of single properties while allowing you to invest in real estate as part of your retirement portfolio. Like target date funds, they are not very tax efficient, so they are best for tax-advantaged accounts.


Resources to learn more: 

Investments Outside of the Stock Market, Including Real Estate


In addition to investing through the stock market, many physicians choose to diversify their investments by considering other types of investments. 


While investments in the stock market are a tried and true pathway to wealth, many physicians also want to invest in other asset classes that create opportunities for steady cashflow or tax benefits that aren’t available through investments in the stock market. 


These include:


Your investments in the stock market create wealth over time, but for many physicians, once the money goes in, it doesn’t come out until retirement. Therefore, it may not affect how wealthy you feel today. Investments that provide monthly income such as cashflowing real estate are investments that not only appreciate over time, but also allow you to cut back clinically secondary to additional income streams, and in recent years, have become very attractive to physicians.


Additionally, unless you’re investing in individual stocks or getting creative with your investments in the market through things like futures or options trading, most physicians investing in the stock market do so through index funds. This is a historically proven pathway to an average of 8-10% annual returns over time. Investing in some of the investments in this section can lead to much higher returns, and many physicians want to allocate a portion of their portfolio to this ‘go for the moon’ type strategy. It’s important to be cautious with this, as you should understand the concept of risk-adjusted returns - the higher the return potential of an investment, the higher the risk of that investment. Never invest in an investment without understanding the potential to lose money, and make sure that you don’t go too far out on a limb with money you can’t afford to lose.

Short-Term Versus Long-Term Investment Options


How long you plan to have money invested can also help you determine which types of investment options to consider. When we make the distinction between short-term and long-term investments, we’re generally looking at a 2-3 year timeframe. When looking at larger purchases such as real estate investment properties, this can stretch up to five years.


If you’re looking at holding onto an investment for over five years, such as with retirement savings, you can usually ride the ups and downs of the stock market with many of the investments introduced above in the stock market section. 


When looking at a short time horizon, however, you may run into the issue where you’re ready for the home renovation, mortgage down payment, private practice buyin, or the dream vacation, but the market is down 18% and it would be financially disadvantageous to pull your money out to take the loss. All of these situations require saving up money, and you don’t want that money sitting in cash, actively losing spending power to inflation and increases in cost of living - instead, you should consider a short-term investment.


Exception to the rule: Though you should have your emergency fund for years, we still suggest parking it in a short-term investment option like a high-yield savings account, cash management account, or money market account. Your emergency fund’s job isn’t to make you money like an investment. Its goal is to provide stability. You can find a balance, however, where your money is safe and secure while still earning you something!


A high-yield savings account (HYSA) is one of the best options for short-term investing as it can allow for fairly easy access while providing decent returns to help keep up with inflation. Our partner, SoFi, offers such an account with a bonus:


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Another similar option is a cash management account, which is similar to a high-yield savings account and can offer FDIC insurance by working with institutional partners, but is offered typically by brokerage firms instead of banks. Our partner Wealthfront offers such an account, with a special PSG member perk:


Wealthfront High-Yield Cash Account ​

  • High-yield cash account with 5.00% APY

  • No minimum or maximum balance restrictions on APY

  • Zero account fees

  • Unlimited transfers & free same-day withdrawals 

  • Up to $8M FDIC insurance through partner banks ($16M for joint accounts)

  • Through our affiliate link​, Physician Side Gigs readers get a cash bonus of $30 for opening your first Wealthfront Cash Account and funding at least $500.

*Terms and conditions apply.  All products subject to approval.


Other short-term investments to consider for short-terms savings include:

  • Certificates of deposit (CDs)

  • Corporate bond funds

  • Money market funds

  • Money market accounts

  • Municipal bonds

  • Treasury bills (T-bills)


Learn more about high-yield savings accounts (HYSAs) and cash management accounts, as well as other good short-term investment options physicians should consider.

Asset Allocation and Common Investing Strategies


Once you know what to invest in and how much you aim to invest overall, you have to figure out how much you want to invest in each different type of investment (asset allocation).


As busy professionals, doctors tend to prefer to keep this as simple as possible. Index funds, mutual funds, and ETFs can help make this possible as discussed above, along with a couple common strategies.


A target date fund is a type of mutual fund where the mix of bonds, stocks, and other securities gradually changes according to the fund’s targeted retirement date. These can also be great for ‘lazy’ investors, but are less optimal for taxable accounts and may not maximize your growth potential, so you may not want to lean too heavily into them long term.


Learn more about the advantages and disadvantages of target date funds.

The 3-Fund Portfolio


The three-fund portfolio can help you balance three main types of asset classes:

  • US Total Bond Market Fund: domestic bonds (lower risks, lower returns)

  • US Total Stock Market Fund: domestic stocks (higher risks, higher potential returns)

  • International Stock Market Fund: international stocks (adds diversification of different economies)


In general, it’s very difficult to beat the market average in the long run, so aiming to match the average can be a sound investing goal. Using index funds for these three categories can be a great way to reach this goal. Many are passively managed, which can lead to lower fees, increasing their compounding growth potential.


There are many different asset allocation percentages between the three asset types. Two of the most common are:

The 80/20 aggressive three-fund portfolio
The equal moderate three-fund portfolio

Learn more about the three-fund portfolio strategy.


The 4-Fund Portfolio

A four-fund portfolio is a natural extension of the popular three-fund strategy. A common four-fund approach is to include REITs. An example of a four-fund strategy is:

  • 40% bonds

  • 35% domestic stocks

  • 20% international stocks

  • 5% REITs


Another option for a four-fund portfolio is to include international bonds, which could look like:

  • 28% bonds

  • 12% international bonds

  • 40% domestic stocks

  • 20% international stocks


Help with Asset Allocation


If you’re new to investing, the sheer number of different options between mutual funds, ETFs, index funds, etc. can be overwhelming. You may not know what risk tolerance you have if you haven’t invested before, so selecting an asset allocation target for your portfolio might feel like shooting darts in the dark.


For new investors starting out, a robo-advisor can be a great compromise between a DIY approach and hiring a financial advisor. A robo-advisor will ask you a set of standard questions to guide your portfolio allocation, then automatically invest you into those funds moving forward. Our partners at Wealthfront have a quick and easy setup process, so you can start investing in just a few minutes.


If you already have additional income streams or want a more tailored, individual approach, a financial advisor can help educate you on different options and put together a comprehensive financial plan to help you reach your goals. Many financial advisors also offer asset management to keep a close eye on your investments if you want a more hands-on approach.


Learn more on our database of financial advisors for physicians, including what to look for when interviewing a financial advisor.

Asset Rebalancing


Once you have a target asset allocation to help optimize profits while reducing risk, keep an eye on your portfolio (generally a few times a year–checking too often can stress you out!) to make sure your portfolio is on track with your target asset allocation percentages. Since different funds grow at different rates and fluctuate over time, your percentages can change. For example, depending on current economic treads, you may find bonds doing better than average with stocks performing below average, or vice versa.


One way to address this is by allocating future investments to dedicated areas of the portfolio to bring things back to your desired asset allocation percentages. As your portfolio gets larger, this may be harder to achieve just by investing more money.


Doing a full asset rebalance in a tax-advantaged retirement account can be an easy way to course correct. Many 401k providers will allow you to see what your current percentages are and enter what you would like to change them to, completing a rebalance in a few minutes.


In taxable accounts, this can create a large tax bill if the funds you’re selling have gains, so we don’t recommend this approach unless you can tax-loss harvest somewhere else to balance your tax burden. Instead, change how you invest your future contributions until your portfolio realigns with your target asset allocation.


One of the advantages of robo-advisors such as Wealthfront is that they handle all the asset rebalancing automatically for you, though they can only handle what is managed in their account. If you have multiple investment accounts across 401ks, IRAs, HSAs, brokerage accounts, etc. you want to make sure you have an overall picture of what your total portfolio looks like.


A 60/40 balanced four-fund portfolio asset allocation doesn’t mean that each individual account has to contain 40% bonds, 35% domestic stocks, 20% international stocks, and 5% REITs. You may want most or all of your REITs within a Roth account, where you never have to pay taxes on the dividends and the growth. Similarly, you may want to load your taxable accounts with low turnover options that don't generate many capital gains and thus taxes.


If you don’t feel comfortable reading about this and doing it yourself, a financial advisor and/or accountant can help you put together a comprehensive plan that takes into account tax strategies as well.

Roth Versus Traditional Investing


While assessing investing options, you’ll come across two different types of retirement plan options: traditional accounts and Roth accounts. These are not specific types of investment accounts like a 401k or IRA. Instead, these terms tell you how the money in the account is treated tax wise.


You can often have both traditional and Roth versions of an account, though income restrictions can prevent you from investing directly into a Roth IRA. (Learn more about Roth IRAs below.) Annual IRA and 401k contribution limits factor in the total in both your tradition and Roth account options, preventing you from maxing out a traditional IRA and Roth IRA in the same year for example.


Traditional accounts are typically pre-tax investing. The money goes in before you pay taxes on it, lowering your taxable income for the year and thus your taxes owed. You are then taxed on your contributions and their growth when you withdraw the funds in retirement. Traditional accounts have required minimum distributions (RMDs) when you reach the IRS defined retirement age (this can change year to year but is generally in your 70s).


Roth accounts are post-tax investing. This means the money goes in after you’ve paid taxes on it. The benefit to a Roth account is that all growth in the account is tax free and you don’t pay taxes when you take money out. Roths also typically have the advantage of not carrying required minimum distributions (RMDs), which can allow your money to grow for a longer period of time and also have great estate planning benefits.

Comparing a traditional account versus a Roth account.

Learn more about choosing a traditional or Roth account.

Tax-Advantaged Retirement Plans for Physicians


When looking at retirement investing, there are several different retirement plan options that offer tax-advantages for investing. When possible, we recommend maxing these out to capitalize on your tax-advantaged options since the limits reset every year and you cannot carry them over.

Employer Sponsored Plans


With employer sponsored plans, your contributions are taken directly out of your paycheck either pre-tax or post-tax, depending on if your employer has a Roth option and which you decide to use. You can set up your asset allocation to have your contributions auto invest with each paycheck. Remember, do not leave it sitting in cash.


There are four main types of employer sponsored plans:


  • 401k plans for private companies

  • 403b plans for public school systems, churches, and other charitable organizations

  • Governmental 457b plans

  • Nongovernmental 457b plans


These plans allow you to make employee contributions (elective deferrals) up to the annual contribution limit set by the IRS. In 2024, that limit is $23,000 across all of your employer sponsored plans.


These plans may offer an employer match. If your employer is willing to match a certain amount you invest, this can be a 50%-100% return on your investment immediately. There are few, if any, other investment opportunities with better returns, so contribute enough to take your match at a minimum.


401k plans are generally protected from claims from creditors, including malpractice suits, so contributing to your 401k plan can be a great way to protect your assets as a physician.


Learn more on our traditional versus Roth 401k page.


Like a 401k plan, 403b plans can offer both traditional and Roth account options, though 403bs tend to have higher administrative costs with lower overall returns. They may have less creditor protection as well.


Government 457b plans are great and are similar to 401k plans.


Non-governmental 457b plans are tax-deferred compensation plans. This means that you contribute to the account and invest it, but the money is not yours until it is distributed. This can lead to issues with your employer’s creditors or tax implications if you leave their employment.

Learn more about the differences between governmental and non-governmental 457b retirement plans for physicians.

Individual Retirement Accounts (IRAs)


While the contribution limit is much lower ($7,000 for 2024) for IRAs than employer sponsored plans, they are a powerful tax-advantaged retirement option that all physicians should consider.


They come in both traditional IRAs (pre-tax contributions) or Roth IRAs (post-tax contributions), but there is an income limit for being able to contribute to a Roth IRA, which most physicians exceed ($161,000 for single tax filers and $240,000 for married tax filers). There are phase out ranges for reduced contribution amounts and special rules for married couples who file separately.

Learn more on our guide to retirement accounts for physicians and our Roth IRA basics for doctors

If you exceed the income cap, you can do a Backdoor Roth IRA instead, which is a completely legal tax loophole.


Backdoor Roth IRA


With a Backdoor Roth IRA, you contribute post-tax dollars to a traditional IRA, then roll them over to a Roth IRA through the “backdoor” regardless of your income. The annual contribution limit is the same as the traditional and Roth IRAs.


The rollover process is simple, though there is one caveat. If you have any pre-tax funds in any IRA in your name, such as a SEP IRA or other traditional IRA, you may owe taxes thanks to the IRS’s Pro-Rata rule, so check before attempting the Backdoor Roth.


Learn more about the Backdoor Roth IRA.


There is also something called the Mega Backdoor Roth. This is done through your 401k plan if you already max out your annual employee contribution limit and want to superfund your 401k.


Learn more on our guide to the Mega Backdoor Roth.

Health Savings Account (HSA)


If you have a qualified high-deductible health plan (HDHP), you can invest pre-tax funds into a HSA like a traditional 401k or IRA, but then the growth and withdrawals are also tax-free for qualified medical expenses, like a Roth 401k or IRA.


Unlike a FSA (flexible spending account), you can invest your HSA contributions in the stock market to capitalize on compound growth and the account's tax advantages.


The annual contribution limits in 2024 for a HSA are $4,150 for a self-only plan or $8,300 for family coverage. There is no income limit to contribute.


Learn more about health savings accounts.

Investing Strategies for Self-Employed and Side Gig Physicians


Many 1099 doctors assume they are out of luck when it comes to retirement accounts outside an IRA since they don’t have an employer-sponsored plan. Not only is this untrue, there are great advantages to self-employed retirement plans, including the ability to earn a tax deduction for “employer” contributions you make.


There are several different options including:

  • Solo 401k



  • Defined benefit plan

  • Cash balance plan


Learn more about each of these plans on our guide to self-employed finances. You can also take a deeper dive into the solo 401k plan, which is the self-employed version of the regular employer sponsored 401k plan discussed above.

Other Tax-Advantaged Savings Accounts


If you’re looking for even more tax advantaged savings options and have children, grandchildren, or other dependents you plan on including in your estate plan, consider contributing to a college savings plan. There are several options including:


  • 529 plans

  • ESA plans

  • UTMA

  • ABLE accounts


We provide an overview of all these account types on our personal finance primer for physicians, but want to highlight our favorite college savings plan: the 529 plan.

These plans can be a great way to provide early estate planning for inheritances for your children (or grandchildren) while helping them avoid student loans. Recent changes to legislation have also increased the way 529 plan funds can be used without having to pay taxes, including an option to rollover to a Roth IRA under certain stipulations.


Learn more about 529 plans.

Investing in Taxable Brokerage Accounts


If you max out the tax-advantaged retirement accounts above and still have money you’d like to invest or if you’re well on your way to saving for retirement but are also looking into investing in real estate, you can invest outside of retirement accounts in a brokerage account with firms such as Charles Schwab, Fidelity, and Vanguard.


Above, we cover the tax benefits of investing in designed retirement accounts. Taxes work differently in brokerage accounts.


If the investments you buy have high turnover, such as a target date index fund, you can be taxed for capital gains on the securities held within the fund. This is why we recommend holding these types of funds inside tax favorable retirement accounts instead.


In a taxable brokerage account, you will also be taxed on dividends that your investments produce. Dividends can be either qualified or nonqualified, depending on the asset. Nonqualified dividends are taxed at your normal marginal tax rate. Qualified dividends get special tax treatment and are taxed at either 0%, 15%, or 20%, depending on your taxable income.


Interest produced on assets held within a taxable account is taxed at your ordinary tax rate.


Finally, when you go to sell an investment you own, you will be taxed on the gains of the current value versus the purchase price. If it’s gone down in value, you gain a credit from the losses. This can lead to tax-loss harvesting strategies, which a financial advisor can help you with. If you’d held the investment for more than a year (long-term), the gains (not the full selling price) will be taxed at your capital gains rate. Short-term gains for assets held for less than a year are taxed at your ordinary tax rate.


Learn more on our guide to understanding taxes for physicians.

Recommended Reading on Investing for Physicians

Above, we’ve covered the basics of investing 101 to help physicians understand how to get started in investing. If you love the 30,000 foot view but want to dive deeper, check out the learn more links included in the sections above to view our breakout articles that cover each topic in more detail. You can also watch replays of our free finance-related educational events.


If you want to go even deeper into the nuts and bolts of investing, view our books page for recommended reading on investing under the personal finances tab. A few of our favorites include:


Great intro book to the basics of investing philosophy, and topics such as the backdoor ROTH, ETFs, estate planning, and retirement accounts.

This book will teach you the concept of index fund investing and how to diversify your portfolio with minimal fees and historically same or better performance than most financial advisors.  This is a LOT easier than it looks.  As in, checking in on your investment account a few times a year.  Strongly believe this book can save you hundreds of thousands, if not millions, over the course of your career.

A classic book on personal finance as it relates to physicians.  A great read for residents and early career physicians who are starting from scratch.  There aren't lots of details about 'how,' but lots of pearls.  This is supplemented well by its sequel, which has more concrete advice.

This book is one of my new favorites.  It's an easy/quick read that highlights so many of the basic financial principles as well as presents a balanced view of how to think about money. The lessons and examples are tangible and really puts everything in perspective.  

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