Physicians are often categorized as "accredited investors," according to a recent Medscape report, which denotes them a class of investors recognized by the Securities and Exchange Commission that has earned at least $200,000 in the last two years or has a net worth of more than $1 million, excluding their private residence.
Because of this, physicians can also be prime targets of financial investment scams. James Dahle, MD, operates The White Coat Investor, a financial literacy resource for physicians. He told Medscape that because of their high-achieving and often "altruistic" nature, physicians may be over-trusting or over-confident when exploiting investment opportunities.
Several physicians joined Dr. Dahle and Medscape to discuss best practices for physicians looking to make private significant private investments:
1. Keep expectations reasonable. The stock market returns an average 12% per year, notes the Medscape report, and physicians should be wary of opportunity promising quick, easy or exorbitant returns.
"Oversized returns are not very common in the world," said Jordan Grumet, MD, the host of the "Earn & Invest" podcast, in the report. "If they were, we'd all be multimillionaires. Making money is hard."
2. Don't "turn red flags into green." If an opportunity comes with a high pressure to move on investment decisions quickly, it can often be a red flag for a scam, says the report. This also applies if someone is sharing an opportunity that is overly complicated or difficult to understand. For this reason, physicians should apply extra scrutiny to any alternative investment and those trying to sell them.
"That doesn't mean that most syndicators are scammers," Dr. Dahle said. "They’re not. But if you're going to be a scammer, you're probably hanging out in the crypto world or the private real estate world, or the oil and gas world. That's where you hang out because there are a lot fewer eyeballs watching you there."
3. Select a team with shared values. Finding a financial advisor who swears to "do no harm" and has a long track record of working with clients with a profile similar to yours can help physicians steer clear of bad opportunities. Physicians should select an adviser who is registered with the SEC and has a "fiduciary duty" to their clients.
"A lot of financial advisors aren't fiduciaries, which means that they're not bound to work in their clients' best interest," Jordan Frey, MD, creator of the blog, "The Prudent Plastic Surgeon," told Medscape. "They can work in their own best interest, and we just don't recognize that, or it doesn't even compute with us because we think, 'Of course they’re going to try to help us.'"
4. Be truthful about your knowledge about wealth-building. Physicians should be dedicated to building their financial literacy over time and do their own additional research to become more familiar with the concepts and terminology of personal investment and finance.
5. Focus on diversification and caution. Having a diverse portfolio of investments can help ensure that one investment mistake doesn't destroy one's overall holdings.
"I learned the importance of using the minimum investment amount when you're working with a new person," Dr. Dahle told Medscape. "And I also learned that even with as much due diligence as you can do, it's still possible to end up the victim of a scam or fraud."