The COVID-19 crisis has created a significant financial setback for almost all physicians, including dermatologists. For the first time ever, many medical practices closed completely, decimating revenue and personal income. On top of this has come a stock market downturn and extreme market volatility, where many investors have seen years of retirement savings wiped out in a matter of months, or even weeks.
As we discussed in last month’s column, the crisis has led many physicians to ask the question: “What should I do?” In this article, we will discuss six constructive actions to take regarding your personal finances and investments to help you weather the storm and prepare for better days ahead.
Action #1: Focus on the Long Term: Macroeconomics
One of the topics we encourage dermatologists to discuss with their trusted financial advisors is the long-term history of the US stock market and economy. Looking at more than100 years of data can help nervous investors reduce stress when seeing previous serious shocks to the system (like World Wars, Great Depression, Great Recession, etc.) and subsequent recoveries. Doing so can help you apply the ancient wisdom “this too shall pass” to the financial arena.
Action #2: Focus on the Long Term: Microeconomics
Perhaps even more valuable than reviewing long-term macroeconomic history with your trusted financial advisor is to re-examine your personal (microeconomic) long-term future. This means reviewing your long-term financial model with assumptions that reflect our new reality—ideally, through adjustable, iterative software where variables can be altered, and best/medium/worst cases saved for future review. Many physicians who are years away from retirement may see that even the short-term pain of today will have a relatively minor impact on their long-term plans. This realization can be burden-relieving.
Another benefit of looking at your personal planning model is to refocus on cash reserves and personal spending. In good times (i.e., the last decade), many physicians lost focus on both personal spending and maintaining a sufficient “rainy day fund.” Times likes these can lead to an appropriate refocusing on these two key elements of financial modeling.
Action #3: Make Tactical Investment Changes… or Don’t
Moving from the long term to the short term, there may be tactical investment changes to implement during this crisis. For some, this will simply mean rebalancing asset class allocations to their long-term strategic percentages. As an example, an investor with a long-term strategic model of 70 percent stocks and 30 percent bonds and alternatives might see those percentages move significantly from those benchmarks during a stock downturn, especially if stocks lose value when bonds and alternatives remain steady or gain in value. Simply rebalancing back to the 70/30 split would require some trading—even if both the physicians and advisor agree nothing should change for the long-term model.
For others who need cash to maintain their practices or pay personal bills, securities may need to be sold regardless of, or in addition to, rebalancing. Determining which assets to liquidate and how to minimize tax implications is extremely important in these situations.
Finally, many investors may make no changes to their portfolios. In all three cases, of course, dermatologists should be driven by rational decision-making, ideally with the assistance of a professional advisor.
Action #4: Make Sure Your Financial Advisor is Acting in Your Best Interest
Understanding the difference between the fiduciary and suitability standards under which financial advisors work is crucial—yet it is a distinction that even many experienced investors do not comprehend.
Stated succinctly, one set of investment advisors operates under a professional standard that requires them to make suitable recommendations to their clients without having to place their interests below that of the client. A key distinction in terms of loyalty is also important, in that this type of advisor’s duty is to the firm he or she works for, not necessarily the client served. In contrast, another set of investment advisors operates under the fiduciary standard, meaning they have a fiduciary duty to their clients—i.e., they have a fundamental obligation to provide suitable investment advice and always act in their clients’ best interests.
There is no better time than during this crisis to understand how one’s advisors make money and to whom they owe their duty. Ask the right questions and you will learn the answers.
Action #5: Protect Against Other Risks
As we deal with the COVID-19 pandemic, we are primarily focused on its direct impact on practice and personal financial risks. For those who have the capacity to do so, this can be a good time to focus on protecting against other risks as well. Many physicians may re-examine their insurances, from disability insurance and life insurance to long-term care coverage for themselves or family members. Others are finally getting around to legal planning that they have put off for years, including asset protection and estate planning.
Action #6: Use Downtime Wisely
We encourage all physicians, including dermatologists, to productively use any downtime they have during this crisis. Many medical practices may be closed or operating at significantly reduced capacity. For these reasons and others (lack of travel, conferences, children’s activities), many doctors have more time on their hands now than at any time in their careers.
We encourage you to spend some of that time focusing on the actions outlined in this article. Physicians can also take advantage of a wide range of free educational content to increase their knowledge on financial matters. At some point, we will all go back to busier schedules and we will thank ourselves for being better prepared to handle the items on our financial to-do lists.
The authors have recently completed Wealth Planning for the Modern Physician, their first book for physicians in five years. To receive free print copies or ebook downloads of this book or Wealth Management Made Simple, text PRDERM to 555-888, or visit www.ojmbookstore.com and enter promotional code PRDERM at checkout.
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