I previously wrote that doctors are in a unique position from a financial planning standpoint, in that if they will focus on their savings goals first, they can reach a comfortable retirement without taking much risk. Physicians have another unique opportunity in the investing world that arises from their specialized knowledge and training. Many physicians are in direct contact with pharmaceutical, medical device and other medical equipment companies. As a result, many have a better understanding than almost anyone else of 1) how that company’s products stack up to its competitors; and 2) whether a new product is more likely to succeed or fail. That knowledge should be paired with traditional stock research to determine whether an investment is worthwhile. While it is unlikely to make-or-break your retirement, just one or two correct (or lucky) purchases over the course of a career could have a significant impact.
So while physicians should consider taking advantage of their expertise, it is even more important not to go overboard with these types of investments. Individual stock purchases are risky, so these types of purchases should be limited to 5-10% of the stock allocation of a portfolio, and even then probably spread out among 2 or 3 stocks. Another reason is that a physician’s greatest asset–his or her steady income–is already heavily exposed to the healthcare industry. If a physician takes on too much risk with stock investments in healthcare-related companies, then he or she is almost doubly exposed to that industry between their investments and their income. Just as a real estate agent shouldn’t only own real estate, or a banker shouldn’t only own bank stocks, a physician also needs to pay close attention to his or her healthcare investment holdings.