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Doctors and investment: 5 principles you need to know

To accumulate wealth and achieve financial freedom, you need to invest. However, many doctors make costly investment mistakes, because they have never been taught the fundamentals. In this article I want to provide you with some valuable learnings and tips.

Investing versus speculating

Many people believe they are investing when in reality they are speculating. In simple terms: investors have a long-term timeframe, whereas speculators mainly try to make short-term profits, by actively trading and timing the market. Speculating is therefore generally considered to be higher risk.

Investors believe that as long as they buy quality investment assets and hold them for the long term (‘time in the market’), they will reap the rewards in terms of achieving good capital growth. Investing, not speculating, is the key to wealth creation. If you want to speculate, use only money that you can afford to lose.

Time in the market versus timing the market

Many people believe that the key to successful investing is knowing when to buy and when to sell, in other words ‘timing the market’. The reality is that no one, not even professional investment managers, has been able to consistently predict share market returns or events with 100% accuracy.

The other problem with trying to time the market is that history has shown that you may end up missing the market’s best performing days or months, which can make a substantial difference to your final return.

‘Time in the market’ on the other hand means buying assets and holding them for the long term, irrespective of market ups or downs. Through the ‘buy and hold’ strategy, you take maximum advantage of the power of compounding.

It needs to be noted that ‘buy and hold’ does not mean that you never reassess your investments. It is still prudent to regularly review your portfolio in the light of your personal circumstances, your risk profile and overall economic circumstances.


According to Albert Einstein the power of compounding was said to be the eighth wonder of the world. Compounding is a simple principle, which refers to the ability of an asset to generate earnings (e.g. interest), which are then reinvested in order to generate their own earnings

Example: Let’s consider the example where someone starts investing $2,000 per annum from age 20 for 10 years, versus someone who starts investing $5,000 per annum from age 45 for 20 years. Who do you think will have the highest balance at age 65, assuming the average return was 7% p.a.? Surprisingly, it is the person who invested less ($20,000 in total versus $100,000), but started earlier, who ends up with approximately $337,800 as opposed to $240,000, or a difference of approximately $97,800.

So, the sooner you can start investing, the bigger the financial benefits will be.

Risk vs return

Investing always carries an element of risk, which means that an investment may not deliver the expected return and values may swing quite extremely (volatility). Different types of investments carry different levels of investment risk and will also produce different expected returns. As a general rule, the higher the potential investment return, the higher the investment risk.

So-called defensive assets such as cash produce lower long-term returns and carry a lower risk of capital loss, while growth investments such as shares may provide higher returns but are also higher risk. However, in the short term the risk-return relationship can often become disconnected. One example of this is where shares during a share market downturn produce a lower (negative) return than cash. Also, higher risk does not always guarantee a higher return; there are risks worth taking and risks that are not. There are many examples of high-risk investment products that have resulted in significant or total capital losses for investors. Likewise, products that are marketed as low-risk and high return should raise a red flag, as they are in contradiction with this fundamental principle. It is important you consider both your appetite for risk and your timeframe before you invest.

Understanding what you invest in

A good way to minimise your risk is to only invest in what you understand. If it does not make sense to you, maybe you shouldn’t invest in it. Even the most well-known investor in the world, Warren Buffet, follows this principle.

As part of your decision making process, you should consider the following in particular:

Transparency If it is very difficult to work out what exactly what you are investing in, alarm bells should start ringing. These investments are typically built around complex financial instruments such as derivatives, but dressed up as mainstream, ‘safe’ products.

Liquidity How easy is it to convert your investment into cash? Some investments are very illiquid or do not offer any exit opportunities until a certain maturity date. For example, some unlisted property funds or syndicates may not offer any exit opportunities for a couple of years.

This does not mean that you should not invest in such products, but you should at least be very mindful of the potential consequences of not being able to sell your investment when you want to and/or at the price you want.

It is generally a good idea to have an investment portfolio that offers sufficient liquidity and the closer you are to retirement, or the higher the probability that you may need to access your capital, the higher your focus on liquidity should be.

About me

I specialise in managing and coordinating the financial affairs of medical professionals and have been recognised as one of the best financial planners in Australia. I am a Certified Financial Planner and member of the Financial Planning Association of Australia.

As I understand your time is extremely valuable and scarce, I am able to offer flexible meetings times, including outside business hours and during the weekend. I can even come and meet you somewhere convenient, or talk via videoconference on Skype.

My first consultation is free. I allocate up to 90 minutes to discuss your personal circumstances and to establish how I may best assist you. Where you already have an existing adviser, I would be happy to offer a second opinion. I always quote a fixed dollar fee before we start working together.

Please contact me on or call me direct on 08 9381 2704. You can follow me on Twitter @YvesSchoof or connect with me on Linkedin to receive new articles.

Disclaimer: Yves Schoof and Affluence Private Wealth are Authorised Representatives of Synchron, AFS Licence No. 243313. The information posted is intended to be general in nature and is not personal financial product advice. It does not take into account your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs. In particular, you should seek independent financial advice and read the relevant product disclosure statement (PDS) or other offer document prior to making a decision.

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