How I invested during medical residency

I come from a family where there was little knowledge or emphasis on investing. As a medical student, I turned to YouTube to educate myself about investing. Through my studies, I realized the significance of investing as a step towards financial freedom. As a physician, my aspiration is to choose to work, not out of absolute necessity but out of passion for what I do, and I believe investing is a key component in achieving this goal. Here are the steps I took to invest during my residency.

Tip #1 - Open a RothIRA

A RothIRA is an individualized retirement account that enables you to invest money that has already been taxed, and then withdraw it tax-free once you reach the age of 59 and a half. Many medical residents qualify for a RothIRA since their modified adjusted gross income is below $161,000 for individuals or $240,000 for married couples filing taxes jointly (as of 2024). Attending physicians often earn too much to be eligible for a RothIRA, so residency may be their only opportunity to benefit from this type of account. Personally, I use Fidelity for my RothIRA, although Vanguard is another popular choice. The primary reason I chose Fidelity over Vanguard was due to the availability of zero-fee funds, which I will elaborate on further in step 3.

Tip #2 - Set an investment goal

During my residency, I made it a goal to maximize or contribute $7000 (as of 2024) to my RothIRA each year. With the average resident income at around $70,000 annually, I believed that dedicating approximately 10% of my earnings to investments through budgeting was a feasible target. I recognized the danger of thinking, "Why bother investing now when I'll earn much more in the future," but I found value in establishing realistic financial objectives as a resident that could be carried forward into the future. For those unfamiliar with investing, it's perfectly acceptable to start small, even with minimal amounts. As a medical student, I chose to invest $250 that I could spare through Robinhood to gain insight into the world of investing.

"How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case." — Robert G. Allen

Tip #3 - Don't be afraid to make mistakes

I am still in the process of improving my own mindset, but I believe it's crucial to recognize that making mistakes is acceptable. The primary aim of investing is long-term profitability rather than short-term gains. While young, occasional mistakes are permissible because a RothIRA is designed for future benefits, not immediate enjoyment. For instance, I initially invested in Figs when it first went public, but it quickly declined. While such situations can occur, I also invested in Apple at that time, and it has increased by more than 60% at the time I am writing this post. This experience taught me valuable lessons, helping me realize that some decisions will be good while others may not, but what truly matters is the overall portfolio. It also revealed my inclinations and risk tolerance level.

Tip #4 - Chose your investments

I am unable to advise on the best investment for maximizing profits, but I can share my own approach. Personally, I lean towards a more conservative investment strategy due to my risk aversion. Although I do hold individual stocks such as Amazon and Apple, most of my investments are in index funds and ETFs.

Index funds are investment funds created to mirror the performance of a specific financial market index like the S&P 500, Dow Jones Industrial Average, or NASDAQ 100. Your investment is diversified across all S&P 500 companies based on their market value, offering broad diversification at a single price. These funds are priced at day-end, ensuring order timing does not affect the price. A benefit of having a Fidelity account is access to zero-fee funds like FNILX, FZILX, FZROX, and FZIPX, which require no minimum investment and have no associated fees. Here is an article on Fidelity discussing these funds. My preferred index fund is FNILX as it mirrors the S&P 500, representing the performance of the largest 500 US companies.

ETFs are similar to index funds in that they enable you to possess a bundle of assets like stocks, bonds, commodities, or a blend thereof that mirrors the performance of a specific index, sector, or investment approach. For instance, VOO is a Vanguard ETF available for purchase through Fidelity, similar to FNILZ, both of which track the performance of the S&P 500. VOO has an expense ratio of 0.03%, indicating a $3 fee for every $1000 invested. Generally, these fees are insignificant. One distinction of ETFs from index funds is their price fluctuations throughout the day, akin to regular stocks. There are also ETFs like FTEC that follow the performance of specific industries. FTEC follows the information technology sector in the U.S. equity market, with key holdings such as Nvidia, Apple, and Microsoft. My preferred ETFs include VOO and VTI because they mirror the S&P 500 and total market, respectively, and FTEC because it allows exposure to leading companies in the technology sector.

Tip #5 - Patience and consistency is key

Watching your investments fluctuate can be emotionally challenging. It's crucial not to react impulsively or discontinue investing when your portfolio is experiencing losses. For individuals like myself who are at the beginning of their careers, these investments are intended for long-term gains rather than short-term benefits. Not every investment decision will yield profits, but investing offers the potential for higher returns compared to a standard savings account. Remember, you only realize losses when you sell your investments, so increasing your investments at a young age allows for ample time to recover and generate profits by the time you reach retirement age.

Final Thoughts

During my residency, I decided to follow these simple steps to begin my journey towards financial independence. This is just one approach among many, but has been simple, easy-to-follow, and lucrative for me. I strongly suggest The White Coat Investor by James Dahle if you are looking for more information about finance with a career in medicine.

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