Doctors' 5 Most Common Financial Blunders

Dennis G. Murray, MA

Disclosures

December 02, 2013

In This Article

Introduction

You've heard the rumors: Doctors are pretty bad at managing their money. As with any rumor, there's probably some truth to this one, say financial advisers, to the extent that doctors are busy, focused professionals who often don't have time to be experts in anything beyond what they were trained to do, which is to care for patients.

Here are 5 common money blunders that physicians seem especially prone to making. Even if you have a financial adviser and believe that you're managing your money responsibly, you may want to take another look at how you make some of your financial decisions.

1. Assuming That All bonds Are "Safe" Investments

This is a common misconception among doctors and many other professionals, say financial advisers. "Bonds used to be a safe harbor for investors, but they haven't always been that way in recent years," says Karen Altfest, a principal with Altfest Personal Wealth Management in New York City. Rates on many Treasury bills, for instance, are lower than the inflation rate, which theoretically means that investors are losing money on them.

While some types of bonds, such as municipal bonds and those issued by the US government, are very safe, some others can be as risky as stocks. (Does the term "junk bonds" ring a bell?) Corporate bonds, for instance, yield more than a Treasury bill, but there's always the risk that the company might default on its payments. Naturally, this risk drops with large blue-chip issuers like General Electric, Johnson & Johnson, and Coca-Cola and increases with smaller, fledgling firms. More risk generally means higher yields, but not always.

"Occasionally we have older clients who say they want to buy junk bonds to juice the returns on the bond side of their portfolio," says Matthew Kelley, a financial adviser with Gold Medal Waters, which has offices in Denver and Boulder, Colorado. "Our advice to them is to shift more money into stocks -- say, to a 60/40 mix in favor of stocks, from 50/50 -- which can increase their returns without having to assume the additional risk of junk bonds."

If you own bonds, now would be a good time to take inventory of them, to evaluate their maturities and risk and whether most of them still fit your needs as an investor. As Altfest explains, "A lot of doctors come to us saying they've bought bonds through a bank or a brokerage firm over the years, but they have no idea what they own or how much they paid for them."

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