There could have been a thousand and one reasons why Miguel de Cervantes advised that you don’t put all your eggs in one basket. The saying “don’t put all your eggs in one basket” may not be applicable in every area but it sure applies in the world of investing. Over the years, this saying has become the underlying principle for running investment portfolios successfully.
Most physician investors put all their eggs in one basket because of the fear of losing the investments when they diversify. But this fear is usually unfounded because your risk exposure increases with narrow investing. “Put your eggs in different baskets but carefully choose which basket” is a more acceptable way of seeing diversification.
One of the surest ways of minimizing your risk without sacrificing higher yields from your investments is asset diversification. Each asset class you add to your investment portfolio acts as a separate basket that lowers your risk exposure. So why go for one asset when you can spread your money across different classes?
Importance of Assets Diversification | Don’t Put Your Eggs in One Basket
The importance of asset diversification cannot be overemphasized. When you decide to diversify your investment, you increase your chances of earning higher returns from them. This is because different assets have different risk levels and return rates.
Another reason why diversifying your assets as a physician investor is important is that it helps to minimize or reduce your risk exposure. Every investor desires and hopes that all their investment will perform well but that is not always the case. There will be times when you make losses. Having a diversified investment portfolio will help to ensure you have other assets to fall back on when there is a decline in one asset.
Diversifying your investments ensures that your eggs are not all poured into one basket. Aside from minimizing your risk, asset diversification also ensures you maximize earning opportunities that may come up in other industries.
Benefits of Assets Diversification
There are many advantages attached to asset diversification that every physician investor should benefit from. Some of these benefits asset diversification brings to you are:
- Helps to minimize the effect of changes in the market: Having a diversified investment portfolio is one way of spreading and reducing the risk that comes with a volatile market. Different asset classes move in a different direction in the market, making the risk level of assets different. When you diversify across industries and asset classes, you succeed in lowering industry and asset-specific risks.
- Helps to reduce constant monitoring of investment portfolio: Diversification gives you some measure of assurance and peace. A diversified portfolio ensures that risks are spread across different assets making for stability. For instance, if all your investment is in stock, you may spend a lot of time analyzing the market as well as your next move. A diversified portfolio, therefore, ensures that less time and resources are spent in maintaining the assets.
- Ensures you maximize investment opportunities in other instruments: Each instrument comes with certain benefits that are peculiar to it. By having a diversified portfolio, you can reap the benefits that each investment class brings. For instance, when you invest in real estate, you enjoy the benefit of stability and high yield. When you invest in a fixed deposit, you can be sure of a fixed return gotten in a low-risk environment. Even when any of your assets perform poorly, you can make up for it with the yield from other assets.
- Diversification is the best strategy for long-term investing: When investors invest in diverse high-performance asset classes and sectors, they can benefit from positive market moves. This positive sudden market move places the physician investor in a position of advantage where he or she can gather in the profits.
- Enables the investor to maximize compounding interest: The value of invested money keeps increasing with time making investing the fastest way to create wealth. Every amount invested can generate additional income with time. When you therefore invest, you are using money as a tool to earn more money. It is important to note that when diversifying among assets, the amount put in each investment should differ depending on the risk level of each asset. The aim of diversification is defeated if the same amount of money is used in investing in all the assets.
- Diversification protects your invested capital: There is no better way of protecting your invested capital than diversifying. It is not every investor that wants to go all in and put their eggs in one basket. Many investors are looking out for a measure of stability in their investment portfolios. One of the ways of ensuring that there is stability is by diversifying. So, if you are a conservative investor, diversification is your safety net because it allows you to play safely in the market.
Best Investment Vehicles for Physician Investors
There are diverse investment vehicles that physician investors can take advantage of in accumulating wealth. These assets vary in their level of risk-to-reward ratio. The choice for each investment is dependent on the investor’s personal preferences and financial goals. What are those investment vehicles that physician investors can maximize to reach their financial destination?
#1. Real estate investment
You can never go wrong with an investment in this asset class. Real estate investment is one of the fastest means of moving from riches to wealth. This is because real estate investment is a high-yield, stable and consistent income-generating asset. The level of risk associated with real estate is minimal when compared with other asset classes.
As a physician, you are busy “saving the world” and may not have the time to analyze and monitor your investments. This makes real estate the ideal investment vehicle for you. With its varied investment options (some requiring very minimal direct participation), you can build a steady cash flow.
There are different ways you can take advantage of the real estate market. You can buy and maintain your property (lands and buildings) yourself, or invest with a real estate company and earn regular dividends. The choice is yours!
#2. Buy into a partnership
Have you ever thought of opening and running a private practice? This is a great form of investment for physician investors looking to accumulate more money. Even if you think you don’t have all it takes to run it yourself, you can look out for other doctors ready to take on a partner. When you buy or invest in practice, you are building an asset that can be sold in later years for higher yields.
#3. Own a medically-related business
As a physician investor, you can generate a huge cash flow by becoming an owner of a medically- associated establishment. Such businesses include outpatient surgical centers, labs, pharmaceuticals, laboratories, dialysis centers, and radiology centers.
#4. Invest in an index fund
An index fund is a good way to invest your money as a physician investor. Index fund offers professional portfolio management, and asset liquidity services at no extra cost. You don’t need to be so knowledgeable about investments to invest in an Index fund. You can be sure to retire a multimillionaire if you invest consistently in this asset.
#5. Seed investing or angel investing
Seed investing also known as Angle investing, holds great promise for doctors. Maybe you have spare cash to invest and wouldn’t want to be directly involved, seed investing is a good option for you. You can supply funds to startups or businesses for expansion in exchange for agreed company shares and dividends.
#6. Cryptocurrencies
Known to be one of the most speculative investments, this is the talk of the town currently. Through cryptocurrency investment, you can appreciate your investments in a short period. Cryptocurrencies are digital currencies that take the form of coins or tokens. You can buy cryptocurrencies and hold for a while before selling for a higher price. Cryptocurrencies are very volatile though and are affected by market conditions. Due to the nature of the investment, these are considered extremely risky and there is a potential to lose all your investment within a matter of days or make millions within a short period.
#7. Stock market
Various securities are traded in the stock market. As a doctor, you can buy stocks and hold them for the long term or till they appreciate in value. This is one of the surest ways to diversify your investment portfolio
Conclusion | Don’t Put Your Eggs in One Basket
The average physician may not start their wealth-building journey on time. This could be attributed to the time spent in med school and the high amount of debt accumulated in the process. Most doctors start with a discouraging net worth. However, with the right investments, you can cover up lost time, build wealth and live your best life.
Here at PhysicianEstate, we welcome all physician entrepreneurs to learn about commercial real estate investments, rental property investments, and wealth generation. We encourage all physicians to eventually become real estate physician investors. We know a great deal about Who – What – Why – How.
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