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How should doctors invest and manage their investments during a bear (down) market?
Despite the headlines about soaring inflation, rising interest rates, and high gas prices, it's important not to get discouraged or fall into a state of panic. As physicians, we’ve proven on a daily basis that we’re quite resilient and can make great decisions under pressure.
So what can we do in order to not just survive but thrive in a bear market?
Realize This Is Normal
For starters, we need to understand that this is normal. Everything is cyclical, especially the economy. Bear markets typically occur every three to five years and last for about nine months. When there’s a slump, it’ll soon be followed by a period of prosperity and growth.
So look for opportunities instead of focusing on fear.
As Warren Buffett wisely said: "Be fearful when others are greedy and greedy when others are fearful."
The greatest transfer of wealth happens during recessions and it’s when amazing opportunities are created.
We now have a chance to stress test our investment portfolio and find opportunities to set ourselves up for success both in the short and long term.
Diversification Is Key
According to Ray Dalio, the "Holy Grail of Investing'' is having 13-15 uncorrelated assets in your portfolio. This will help you mitigate risk while still being able to achieve consistently good returns.
His advice can be summed up in one word: diversify.
No, investing only in mutual funds in your 401(k) isn’t true diversification. Controlling assets that behave differently at different times in market cycles is true diversification. Considering this, I’ve focused on investing in many different asset classes including real estate, stocks, bonds, and commodities. Within each class, I mix up the types of investments as well.
Focus on Cash Flow
This is also a great time to think about the two most important words in investing: cash flow. Asset values might go up and down (and further down) but cash flow rules the world.
What pays your bills every month? What determines what vacation you go on? What decides whether you pick up that extra shift or give one up next month? Yes, it’s cash flow.
Having investments that generate cash flow is a vital way to protect yourself from the volatility of any market. Even better, having multiple streams of cash flow gives you a way to profit in both good times and bad. Some might run a bit dry but others will keep flowing.
Invest in Yourself
Lastly, this is the best time to invest in your own education. You wouldn’t be successful without your education so why would it be different with investing? Don’t just outsource it to someone else.
Read books and blogs, listen to podcasts, take courses, and go to conferences.
Learn to set goals, find investment vehicles to reach those goals, find mentors, and surround yourself with like-minded people.
Remember, you only have so many bear markets in your prime to take advantage of. If you focus on the things above, you’ll be able to create cash flow to ultimately live life on your own terms.
The Medical Business column features questions from the Doximity community answered by physicians versed in finance. Post your question in the comment section below.
Peter Kim, MD is the founder of Passive Income MD and the creator of Passive Real Estate Academy.
Animation by Jennifer Bogartz