Physicians, Professionals & Executives

Physicians, Professionals & Executives

For some high-earning investors, the dark days of bear markets – like when the S&P 500 fell 56.8% – damaged them for years. And not just financially. They were not just scared, they were scarred. They went from skeptical to cynical. But as surely as a bull market follows a bear market, it’s only a matter of time before the next bear arrives. And so goes the never ending cycles. No one really knows for sure when one cycle will give way to another, but at our firm, we like to say we plan for the certainty of uncertainty. Because if you’ve invested properly you shouldn’t have to care so much about whether the markets are in a bull or a bear cycle. Physicians, company executives, and business professionals can do a few things now to weather the next stomach-churning bear market.

Set asset allocation and protection measures:

Proper planning can help lessen or even potentially avoid losses when the stock market drops. This can be achieved through the implementation of Preventative Wealth Care, which can include principal protected strategies, tactical investment strategies, intergenerational income strategies, and hybrid strategies; just to name a few.

Here is an outdated and obsolete piece of "advice" far too often heard in the financial industry:

Common Statement: The younger you are, the more risk you can afford to take; therefore, you can have a higher percentage allocated to "risk assets." Your portfolio is smaller, so percentage losses result in less of a decline in dollar terms. Also, you have more years for the portfolio to recover from any declines and grow as your career moves forward.

Actual Fact: With today’s financial innovations this no longer needs to be the approach. It’s NEVER, and I repeat NEVER, a good time to take unnecessary risks. Strategies and investment vehicles these days can allow you to enjoy growth when it’s there and enjoy sleep when they’re not. Also, no two investors are exactly the same and shouldn’t be treated as such.

For example, a 60-year-old doctor with a $5 million portfolio should NEVER expose their portfolio to the potential of a large decline. While the return required is greater for a 60-year-old physician with $500,000, he or she doesn’t need to expose themselves to unnecessary risk in order to achieve a higher return, they simply need additional elements added to their plan. That’s why Preventative Wealth Care is so important. Just like preventative health care, it’s always better to prevent problems rather than treat them after.

Why does your asset allocation matter? Why does principal protection matter? Because memories are short. Bear markets will not stop coming around. It’s never a question of if, but when. The average loss during bear markets since 1900 has been 31%. To put that in dollar terms, if your investment portfolio is worth $2 million, the average 31% decline would represent a loss of over $600,000. There is never an ok time to sustain losses of that magnitude.

Most physicians, CPAs, attorneys, and executives have numerous investment accounts. For example, a retirement plan offered at your practice, usually a 401(k) or 403(b), brokerage accounts with taxable investments, a rollover retirement account from previous employment, and more. A problem we often see is that there is no coordination between the accounts. It doesn’t matter whether a dollar is in an IRA or 401(k) or brokerage account. All accounts comprise your portfolio and need to be coordinated under one, purposeful investment strategy.

When implementing the asset allocation, it’s important to pay attention to which of your assets are held in which types of accounts—called asset location. Generally, assets that generate income belong in tax-deferred accounts. Growth investments should generally be held preferentially in taxable accounts because these accounts are subject to lower tax rates. However, there are many factors to consider since no two investors are alike.

In summary, there are a number of steps that physicians and professionals can take to keep from sabotaging their own financial plans. Feel free to contact us to find out how we can help.