There are no hard and fast rules for crafting an investment strategy, especially early in your career. As with so many domains, the devil’s in the details, according to two top financial advisors.
Disability Coverage Checkup
Protecting your income is job one when creating a sound investment strategy. “Your biggest asset is your earning power,” says Bob Wacker, CFP, president of R.E. Wacker Associates Inc. in San Luis Obispo, Calif. That’s why you need to examine your disability coverage as soon as you start working.
Joel Greenwald, MD, CFP, partner at Sterling Retirement Resources in St. Louis Park, Minn., who often presents financial workshops to groups of residents at the University of Minnesota Medical School, agrees. Many physicians assume that group disability coverage offered through the hospital or physicians group is adequate. But it might not be.
Group insurance policies differ from individual policies in key ways. For example, group carriers might supply disability benefits for two to five years, based on one definition of your occupation, and then, according to their definition of “reasonable” occupation, stop paying if you do not take work in a related capacity.
What you want, says Dr. Greenwald, is a policy—often an individual one—that ties the definition of disability to the performance of activities specific to your specialty. A financial advisor or an insurance agent who specializes in disability insurance can review your coverage and help tailor it to your needs.
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Analyze and Prioritize Debt
One of the first questions high-income earners have to ask themselves is: Should I pay off my debt right away or start saving? “There is no right answer,” Dr. Greenwald says.
High-interest credit card debt is bad, so physicians should eliminate it as soon as possible.
School loans? The experts suggest paying off the higher-interest loans first. But if you can, you should resist the urge to pay down low-interest loans. The interest on your debt, Wacker explains, might be tax-deductible. Look for a financial planner who has a “robust” tax background to help you weigh the tax consequences of debt payoff versus savings.
When you choose a financial planner (see “Finding an Advisor”), expect to examine your disability and debt portfolios, as well as create an estate plan. Make sure you fully fund your retirement plan at work. A 401(k) allows you to contribute $16,500 per year, and most plans match your contributions at 25%, 50%, or 100%, which automatically boosts your balance sheet. It’s also a good idea to establish 529 plans for your children’s education.
Remember that a financial plan is not static; it will require revisiting on a regular basis. And that will entail learning about a whole new body of knowledge. Choose your guides wisely.
Gretchen Henkel is a freelance writer based in California.