Doctors' 7 Most Painful Investment Mistakes

Disclosures

July 29, 2019

2. Side Businesses and Start-ups That Failed

Doctors revealed that they had invested in a variety of businesses: a childcare center, horse-raising and rehabilitation business, radio station chain, beauty and health spa, construction project in the Dominican Republic, restaurants, and kennels. Many others chose medical businesses, such as a new medical device, surgical center, or medical software.

Several physicians said they learned a lot from their business involvement, even if they didn't earn much. Still, "not earning much" is vastly different from "losing a bundle," and many found themselves in the latter position.

"We invested in a wind power start-up company; when it got approved and all looked good, we added more money," said one physician. "Then the company stupidly renegotiated something with the town, which led to reopening the whole approval process for the windmills; rural citizens began to protest having windmills nearby, and the whole project collapsed, with us losing our entire investment."

Lack of advance research also can lead to many problems. For example, one physician bought a laser to use in his practice but has not been able to use it because malpractice insurance doesn't cover it. Another physician said, "I invested in a surgery center that was mismanaged and went bankrupt. I lost money for 10 years."

3. Fast Money Investment Vehicles That Wiped Them Out

Many physicians tried their hand at day trading, which became popular in the 1990s when electronic trading platforms were developed. With day trading, investors aim to buy and sell stocks in the same day, making small profits on each transaction, which hopefully build up to a larger gain. However, losses can mount at a staggering speed, and many doctors who got burned now realize they should have steered clear.

A significant number of physicians also said they lost money on cryptocurrency (a digital asset that works as a medium of exchange), trading options ("Dangerous!" according to one physician), buying penny stocks (very speculative stocks with a value typically under $1), or investing in bitcoin (a type of digital currency that is popular among speculators).

"It can be very tempting to want to get in on the next 'hot' stock and try to make it big on one investment decision," says Ryan Inman, MBA, a financial planner with Physician Wealth Services, based in San Diego. 

"Until you are at the point where you have a solid emergency savings fund, are maxing out your retirement plan accounts, and have paid off your debt, there should be no extra money going toward speculative investments," he says. "Even after you have accomplished those first few savings goals, it is never a good idea to 'bet' on stocks for your long-term retirement money; and if you can't resist the urge, carve out a very small percentage (less than 5%) to buy these types of investments with." 

If you have enough money in your savings and are on target to meet your goals, it's okay to "gamble" with maybe 10% of your money as "play money," according to financial experts. The key is to determine the limit of money that you'll invest or use, and stop when you hit that limit.

The fast moneymaking vehicles described above take real expertise, time, and attention to even have a chance of doing well when using them. Most physicians don't have that kind of time or knowledge.

4. Rental Properties That Created Problems

The idea sounds perfect: Buy a building or condo, and earn passive income as tenants continually pay rent. However, for many physicians, rental properties became the black hole of investing. Doctors cited tenants as the biggest problem of owning rental real estate.

"Tenants who won't pay and won't leave," said one physician, describing his rental property woes. "I had to take the tenants to court to get their rent payment, and they destroyed the property," said another. "I always had lots of vacancies," said a third.

In addition to tenant problems, some doctors' rental property lost value, so the owners lost money when it came time to sell.

"Real estate is a very tough business, and doctors who are working don't have the time to manage the property or learn what they need to know," says Kolluri. "There's a lot involved, and sometimes physicians have to personally guarantee the loan. It takes a lot of work to maintain and look after tenants."

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