The Investment Scientist

Why doctors don’t get rich

Posted on: April 17, 2009

Doctors need financial help

Doctors need financial treatment

Physicians have a significantly low propensity to accumulate substantial wealth.” – Thomas Stanley, author of The Millionaire Next Door

How come doctors fail to get rich? I’ve identified six reasons based on observations working with my physician clients.

A late start

By the time doctors finish medical school and residency they’re typically in their middle or late thirties.  Many have families to feed, and substantial student loans to pay off. It will be years before they can even start accumulating wealth.

Challenging environment

It is increasingly challenging to practice medicine. With the Medicare Trust Fund slated to go bust in 2019, the Center for Medicare and Medicare Service (CMS) is increasingly resorting to cutting physician reimbursements and implementing bundled payments.

Lifestyle expectations

Society expects a doctor to live like a doctor, dress like a doctor, and drive like a doctor. Meeting social expectations can be quite expensive.

Time and energy

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A doctor can’t be just a doctor any more. He and she also has to deal with ever increasing regulatory mandates, paperwork requirements by capricious insurance companies. The demand on their time is mind-boggling. A typical doctor works a ten- to twelve-hour day. After work and family, they simply don’t have time and energy left to do proper financial planning.

Financially naïve

Doctors are smart. They’re highly trained in their area of expertise. But that doesn’t translate into understanding about finance. Because they are smart, it’s easy for them to think they can easily master the field of finance as well. They can’t.

Lack of trust and delegation

Many doctors don’t trust financial advisors working for major Wall Street banks. They have the good instinct to realize that their interests are not aligned. Not knowing there are independent advisors out there who observe a strict fiduciary standard, they tend to do everything by themselves.

Get white paper Wealth Management Guide for Physicians.

How to overcome these obstacles?

Awareness is the first step.  Do-it-yourself is certainly an option, if you have the time to get really good at all things finance. Otherwise, find a conflict-free fiduciary expert to delegate your financial affairs to.  In finding such an advisor, there are six questions you must ask:

1. Is this advisor independent? Is he affiliated or employed by big Wall Street insurance and brokerage firms that have their own agendas? You can do an advisor search on the SEC website to find this information.

2. What is his compensation structure? If he is not fee-only, where does he get his commissions and kickbacks from? Would that compromise his advice to you? This information can also be found on the SEC website.

3. Is he more interested in getting to know you or selling your financial products? You will get a sense in the first meeting.

4. Does he have clients who are doctors in your net worth category? Is he familiar with issues and challenges facing doctors? All you need to do is ask him for a few references, preferably doctors.

5. Does he have a team of experts working collaboratively to help you solve problems? Nobody can be an expert in investment, tax planning, asset protection and estate planning all by themselves. Be dubious of those who claim they are.

6. Does he work with you in a consultative manner?

Share you thought below.

Get white paper Wealth Management Guide for Physicians.

35 Responses to "Why doctors don’t get rich"

Hi ,
I am a 32 year old chiropractor looking to return to med school to persue a degree in orthepedic surgery. I have been disaapointed in my current business. The bussiness of chiropractic is exhausting and limited. I always thought surgeons made pretty good money. I enjoy helping other and fascinated in the human body but I don’t want to go down a road that can put me in further dept that I cant get out of. I already owe 115,000 in student loans and if I return to med school I will have another 185,000 in student loans. From a financial standpoint, would I be better off looking into other business adventures or could I be able to pay back those loans with a decent orthepedic surgeon salary.
I would greatly appreciate your reply and thank you in advance.

Rodney,

With regard to you career pursuit, I can’t give you advice there. You have to look inside yourself and find the thing that you really enjoy doing. Though many doctors make a lot of money but fail to accumulate substantial wealth, you can be an exception if you use the same discipline in finance as in medicine. According to Wikipedia, the medium income for orthopedic surgeons is $388k, that’s plenty to pay down your debt and accumulate wealth if you are disciplined enough to live well below your mean. I know a person who accumulates $5mm on a $200k salary.

I know of several doctors in my area. I guess I don’t know what rich is these days. Three doctors I know, and know where they live, have each 10,000 sq ft homes they look like hotels. They drive $75,000 and up cars and have them wash and detailed by someone I know about every other week at $125 per pop. Now Bernie has a garage in his basement, but not just a normal garage because he is also into racing. He owns I think 4 Ferraries (and several other very high priced cars) including a Mondial, I guess it would be considered a family car because of the 4 seats (only a couple here in the States). I have heard his other house in Argentina is nice. Now I would say one doctor lives in a very modest home in my town a fairly normal home really when he’s not vacationing around the world or spending time in his luxury condo on the beach in Hilton Head. I don’t know how they are in two places at the same time as you say doctors working 10-12 hour days so much, maybe its some sort of magic. I feel real sorry for the poor doctors I wish I could help some more but already cant afford to see a doctor anymore you might laugh but I’m being honest.

Jman,

I can assume you, the doctor who live modestly is much more wealthy than the doctor who has 4 Ferraries. Many doctors seek instant gratification after long years of med school and residency, they bought things they couldn’t afford. That’s why Thomas Stanley says they are the least wealthy among all high-income professions.

This article is so true! I just finished med school and about to go into residency. Right now I have a debt of close to 200k with a residency salary of 50k…after tax and living expenses it doesn’t leave much for paying back loans…it sucks! You have to love the job to do it, otherwise, don’t. I think it would be prudent to invest hard earned money and I plan to do so in the future but I will be the fist to admit that I know squat about financial investment…so will be needing service of someone like you in the future.

Fee based planners are just as bogus as salespeople I love how they love to hype up “fee only” planning! Neither of them understand proper risk management or real wealth accumulation! I have seen people get slapped with huge fees for what I would consider to be crappy advice…by the same token I have seen horrible product reccomendations from salespeople!

There are huge distinction between “fee based” and “fee only”. “Fee only” arrangement has less conflict of interest, they would not benefit from any product sales as the result of their advices. That said, they could still give bad advices.

everybody wants to get rich but not everybody wants to sweat to get rich :

HAHAHA. wow what a dumb article. whoever wrote this garbage most likely makes a garbage salary.

I’m studying to be a doctor and i will finish when im about 30. I’m a careful spender (parents taught me to save up a lot just in case) and don’t plan on marrying soon (I want to live out my single life pleasures first).

I will not waste time, money, and effort to discuss how to spend my hard earned cash with some lowlife idiot.

Does this Dr. Kaiba someone you would want to be your doctor?

i am in high school and planning on become a doctor and this article really making me change my choices….what should i do?

Soroush,

For related info, please check out this blog:
http://www.MedicalExecutivePost.com

Good Luck!
Dr. David Edward Marcinko MBA
[Editor-in-Chief]

MZ, et al,

I’m writing in appreciation for your posts and information despite the ridiculous juvenile comments people post (see #3 and #9 above).

In reply to Jman (#3): yes, some doctors are quite wealthy. Some select fields of medicine pay very well, some people inherit money, some people invest well, some people get luck. Please don’t confuse a well reasoned review with anecdotal evidence. You can always find the exception, but don’t plan on the exception being the rule.

And kaiba (#9): Hardly worth replying to you except to point out that anonymous flames, insults, and presumptions without any basis give you no credibility.

As a hard working physician, I do make a nice salary. I live below my means, I put money into my investment and retirement accounts and I’m saving for my kids college expenses. I am financially secure as long as all goes well. This puts me in a much better position than 85% of Americans and I’m appreciative of this, but this doesn’t make me “rich”. There is no windfall in my future, there is no IPO I’ll benefit from, there are no company options that I’ve received. My solid financial situation has come from 10 years of schooling, ongoing hard work, and good financial planning. To Jman and kaiba, I think that’s the point of Michael’s post.

Michael, while I am not a client, your methodical, reasoned approach may lead me to contact you for services.

Thanks,

David, MD, FACEP

David,

Thank you very much for the kind words. If you ever need to schedule an initial phone call or meeting with me, you may use this link below.

http://www.emailmeform.com/builder/form/410794

Michael

Hello Michael,

As a medical student, what should I learn or do beside medical school in order to prepare myself in finance? I took couple management classes in undergrad, and I can’t stress enough how important finance and business is for a physician. Unfortunately, we don’t learn it in medical school until we face the real world.

I would appreciate your advice.

Khoi

Khoi,

I can’t speak about management since it’s not my area of expertise. However simply knowing it’s important already give you a leg up. Speaking about investment, you can learn a lot follow my blog, and my Google+ public post. You may also like to get a book by William Bernstein, who is a neurologist-turned investor.

Michael

Hi Khoi,

Try the new medical management book: http://www.BusinessofMedicalPractice.com

and, the doctor-investor book:
“Financial Planning for Physicians and their Advisors”

Best.
Ann Miller RN MHA
http://www.MedicalExecutivePost.com

Hello Michael,

Thanks so much for your paper. I have learned something new from your analysis. If you don’t mind, can I ask you for your advice?
Here is my situation and I think many medical students also have the same situation like me:

During undergrad, I worked and lived below my means. Therefore, I have accumulated about 50K to 60K in saving account. However, I am debating whether I should use my savings to pay for my medical school, which is about 60K per year. Take into account that beginning next year, the government will terminate subsidize loan and rebate loan fee. Therefore, my Unsubsidized student loan interest will be 6.8% for the first 20 K + 1% loan fee, and the rest 40K (Grad plus loan) with 7.9% interest + 4% loan fee.

When looking at that number, I think I should limit my student loan as much as I can, especially the Grad plus loan. However, if I spend my saving now, I will not have cash for future investment like down payment for house or something like that. In the current economic, I think having cash is a huge advantage. Moreover, there are some programs or hospitals that give incentive or bonus to reduce my government student loan after I graduate medical school.

So, here are my questions:
1) What is the best way I should do? Should I using my savings to pay for my school?
2) If I keep my savings for the next 4 years, what should I invest in with low risk and reasonable profit?

FYI, beside savings, I don’t have any property or assistance from my family.

I would appreciate your time and advice. I am also welcome other expert’s advice.

Sincerely,

Khoi

Khoi,

1) You should keep enough cash for a emergency fund. The rest you should use to pay tuition.
2) There is no good short term investment at this time that pays anywhere near what your student loan will charge. So avoiding student loans IS a the best investment.

Your financial goal when you are at school should be to keep your loan as small as possible, that would set a good foundation once you graduate.

Michael

I believe this article is biased against doctors. I am already a cardiothoracic surgeons, and my debts are paid off and I am going to have a great life, and I have a porsche, and and beautiful house, and I am not poor.

Bruce,

Good for you. You did not mention your retirement saving, I hope you have that taken care of as well. I’ve seen many doctors with a beautiful house and multiple luxury cars and yet very little in retirement saving.

Michael

I would have to disagree with the fundamental premise of this article, that although drs embark on the mentally taxing study which is medicine, they lack the cerebral fortitude or ambition to properly secure financial affluence. My disagreement is that becoming a dr IS for the most part their attempt at just that- financial prosperity. Don’t get me wrong, I understand what you’re saying. I even agree to an extant, that in spite of the fact that it is a profession that requires a great deal of mental dexterity, more so than that of, lets say, a plumber, it is still just a trade of sorts and though any dr can also be ‘smart’ it doesn’t mean that his intelligence is distributed equally enough to master a handling on finances (or any other area in their life). Such a statement will predictably irk any dr, considering that they themselves have probably by now begun to subscribe to the American mythology which portrays the doctor as the best and brightest our society has to offer, who nature itself decrees that no such ingenious creature should be able to escape a future of abundance and plenty… But still, Most ppl going to school to be a doctor are doing it for the money & 2nd (if even that) for love of medicine. Because of that, and because it is so generally accepted that anyone who becomes a doctor WILL be rich, we have ever more unimaginable school debt burdens which not everybody can accomplish, so theres an increased demand of health care workers (which since it can not be satisfied by drs alone is being replaced more and more by physician assistants and nurses) and skyrocketing health care costs. All of these dynamics interact in such a way that our system has come to a breaking point where ppl are being forced to ask “who cares” if a doctor can buy 5 instead of 3 Mercedes, when some old lady who falls down and breaks a leg will wipe out her entire life savings and STILL be in debt?! Seriously, who cares?!…. Oh thats right, we have to. Otherwise all of our smart doctors will move to China, where they know how to treat rich people.

As a former financial advisor, I would second the premise of this article, and also make a clarification; it’s not that doctors are INCAPABLE of understanding the nuances of personal finance, but rather that in all the time they spend training for, and later practicing their profession, there is little if any time left to devote to studying how to manage one’s finances, let alone keep up with current and new trends in financial product design. A competent and professional financial advisor will have spent YEARS learning how to do this properly, just as a doctor spends years learning how to perform surgical procedures and manage patient care. It’s not something you can master by reading a book or two and a couple of Forbes magazine articles in your spare time, and in fact I would argue that one cannot get enough practice from just managing one’s own finances to qualify as having any degree of expertise, no matter how much book knowledge he acquires. A good advisor will have studied at least a few hundred different financial scenarios and understand what is and isn’t appropriate for each one and why, typically under the tutelage of a seasoned professional who has dealt with THOUSANDS of such cases. (Financial residency, anyone?)

It’s a lot like expecting a doctor to fix her own Mercedes or wire her own 10,000 square foot home for electricity; sure she may have brilliant mind and 10 years of post graduate education under her belt, but she hasn’t been trained to do these other things, so when they need to be done, she’s be well served to retain a professional who has.

Ron,

Great clarification! Thanks! and Happy New Year!

Michael

I want to become a surgeon, and this article gave some good advice, do you know here I can go to get more information on becoming a surgeon?

Scott, that I am not qualified to answer.

Though i totally agree with what you say Michael,
i guess your title of “why doctors don’t get rich” invited some egoistic doctors fury and that explained the nasty remarks from some people.
This is especially so when it is said from mouth of a non-doctor.

Our society have trained our mind to say “Doctor is a noble profession” ” Because of that , doctors should be well paid for their efforts”
These used to be true in 1900s when there is absence of insurance companies. But now with insurance companies “putting caps” how a doctor can be renumerated , the game changes completely.
With very little advanced financial education , the poor doctor is in no position to negotiate with these financial/insurance institution.

I wholehearted agree with the reasons ( in point form) that you have put up , Michael.

I guess sometimes it’s really the way you say it or put it.

If i were you , i will say ” Why doctors can enjoy a good salary but find it difficult to be financially free” Does that sound better?

‘Rich” has different meanings to different people.

Some doctors may feel that owning a property + having a luxurious car to drive in using their regular monthly salary is considered rich.
These people “may have planned to work their own life off” without considering “retiring”.

Though we say these doctors may not be financially free , but to them , they may still call themselves ” Rich”

KS,

I know a doctor (a potential client) who is making $1.5mm a year and have only $120k in the bank. All his money has been invested in real estates that are producing between zero incomes or negative incomes. He is rich but he is not financially free just like you said.

Michael

I can assume you, the doctor who live modestly is much more wealthy than the doctor who has 4 Ferraries. – yes that makes a lot of sense…

my uncle has a lambo, ferrari, and a couple of mercs and a 4 story house, are you saying he’s not rich? and yes he can afford these things because he bought them and still has enough money to pay the bills and his children’s highly expensive private school tuitions. he doesn’t put money in stocks cause he thinks that’s too risky

you don’t make any sense, you’re just trying to get more clients

Jakobnin,

I know one doctor who is like that as well. As long as they are working, they can paper over their financial issues. He makes $1mm a year and have saved exactly $1mm. He can not retire. With his lifestyle, he will run out of money 2 years after retirement. Is this financial freedom or financial straight-jacket?

Lambo, Ferrari and a couple of Mercs cost a ton of money and bring nothing of significance to life. Your uncle has done some very bad trades. He needs my help.

As a doctor myself, seeing some of the responses on what “rich” means crack me up. Rich to me is when your yearly dividend/investment income matches or exceeds your own salary. Then you are financially independent, which to me is true wealth.

These guys with a mentality that owning a Mercedes or Lamborghini means you are wealthy is dead wrong. It just means you spend your money on stupid things, unless the cost of buying a lambo is only a small fraction of yearly income, which I doubt is true of any doctor.

And I agree – even the doctors I work with haven’t a clue how to save money. I’m the only one I know who tries to live like a resident still.

My brother-in-law is a orthopedic surgeon. He also enjoys reading a lot. In addition to his normal continued education, he also studied all the modules for the CFP exam. He unfortunately cannot get the designation, as there is a work experience requirement, but he is much more knowledgeable in portfolio construction, insurance, retirement planning, taxes, and understands how to evaluate different opportunities (lease vs buy cars, understanding time value of money), annuities and other vehicles. He also reads about various types of trusts, which help in protecting his personal assets from malpractice suits. I know many doctors do not have the time or energy to do these things, but he HAS a planner, just wants to know more of the process to “get what’s happening”

Doctor don’t get rich for the same reason most of us don’t. The uncertainty an advanced capitalist system creates. First the lowest paid suffer. Later the highest paid feel the effects. The most affluent members, which includes doctors, simple did not feel the effected of economic centralization the unfettered free markets have been creating over the last 30 or so years. To me it’s a case of they came for the poor and I was not poor so I did nothing. Now they come for the rich and it may be to late. Things seem to trickle up.
I

Doctors may not be in the utmost wealthiest tier of the wealthiest countries, but as far as global wealth goes, an American doctor is typically pretty filthy rich. See, for example: “The Lower Half of the Top 1%” — :”The 99th to 99.5th percentiles largely include physicians, attorneys, upper middle management, and small business people who have done well.” That’s at http://www2.ucsc.edu/whorulesamerica/power/investment_manager.html if the link is allowed. In addition, doctors have the financial security of a stable career that generates steady income. That’s why they can generally spend money now and not worry that it will all go away tomorrow (they are not, for example, MC Hammer or even Nicholas Cage, nor even Bernie Madoff). There is room for improvement, but they are not exactly poor.

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Author

Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC. He is also a regular contributor to Morningstar Advisor and Physicians Practice. To explore a long-term wealth advisory relationship, schedule a discovery meeting (phone call) with him.



You may also get his monthly newsletter, or join his Facebook page for regular wealth management insights. Michael's email is info[at]mzcap.com.

Twitter: @mzhuang

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