Discuss Latest WCI Blog Post: Three Pathways to Wealth

[The White Coat Investor]

Financially successful doctors generally take one of three pathways to success. Which is the right fit for you to build wealth?

The post Three Pathways to Wealth appeared first on The White Coat Investor - Investing & Personal Finance for Doctors.



Click here to view the article!

[familydocPA]

This was a very simple but insightful post. I find myself six years into path #1, and have dabbled in path 2 but found that being a landlord was not for me. If I continue on this path, I will likely reach FI by 45 with a 40-50% savings rate. Yet I find myself drawn to start experimenting in path #3. This line from the article really struck a chord with me:

"The sky is the limit. I can remember running the numbers back in 2010 or 2011 and I could basically predict the ceiling on my wealth from being a physician. I found the existence of that ceiling a little bit depressing, even though it was likely more than I would ever spend. If you do, too, perhaps this pathway is right for you."

I think the biggest obstacle for me has been comfort; I can do nothing, live a fairly comfortable lifestyle, and reach FI by a young age. But I think there is more to life than comfort, and that I have more value to give.

[TheDangerZone]

Where’s the private practice partnership pathway?

Investing into partnership, buying shares to surgery centers, office real estate, etc.. Those make up a big chunk of many physician portfolios and seems ignored in this post.

[dennis]

Where’s the private practice partnership pathway?

Investing into partnership, buying shares to surgery centers, office real estate, etc.. Those make up a big chunk of many physician portfolios and seems ignored in this post.

I would consider that the entrepreneurial pathway, admixed with the real estate.

[TheDangerZone]

I would consider that the entrepreneurial pathway, admixed with the real estate.

You could but that would be your own interpretation.

The article makes no mention of wealth building from physician-owned medical practices in either section.

“That’s not the case for many other types of entrepreneurial pursuits. A few doctors take this pathway to wealth, developing a product or service that grows into a rapidly-growing and profitable business.”

[Hank]

Yep, I also thought private practice ownership warranted a mention. Starting up, running, then selling a one location dental or dermatology practice isn't enough to retire on, but you get favorable tax treatment as an owner, better compensation and the ability to work through others, the possibility to own your building and pay yourself rent (though there's some concentration of risk), and the opportunity to sell your practice for $500K+ at some point down the road. Not every job is compatible with owning your own practice, but it's often the right choice if your specialty will support it.

No, the practice sale alone won't be sufficient to pay for your entire retirement, but it's nice frosting on the cake.

[EntrepreneurMD]

I interpret buying into a practice that somebody else started to be an investment not unlike buying stock in a public company, except it's just not a public company. It feels like Pathway #1 saving and investing. Same with buying into someone else's real estate or surgical center, feels like a private REIT. Again relatively passive.

The entrepreneur is usually the one that starts the business or at least has material input into the changes that accomplish their vision thru organization and management. Attending a partner's/board meeting every month is still a far cry from the intense amount of work and dedication it takes to start and materially grow the business by the founder.

Despite my name, one can take all three pathways although one tends to dominate, it's not either or. Saved/invested a few minions, real estated a few minions, businessed a few minions. Entrepreneurs create their own past tense verbs too don't you know, visually enhanced by cute little cartoon characters.

[White.Beard.Doc]

I paid attention to all things financial throughout my career. I pursued all three pathways mentioned in the blog post, and although there have been some bumps along the way, all three paths turned out to be highly successful. In fact, the pursuit of all three pathways simultaneously has led to an unimaginable level of financial success. Back when we started out, it took us around 8 years to achieve a 7 figure net worth. At that time, 7 figures represented significantly more than it does today. It took another 3 years to double the net worth. the compounding effect becomes very powerful with time.

Pathway one was the physician income pathway with maxing all retirement accounts since residency, along with doing some taxable account investing (small in the early years, significant in the later years). This alone led to a substantial net worth after 3 decades with 2 income earners in the family. (My income was very mid-range, nothing remarkable for a physician for the first 15 years of my career, and my spouse earned less than I did.) I started investment accounts with Vanguard back in the day when using Vanguard was uncommon.

Pathway two was our pursuit of real estate investing. We purchased prime residential rental properties early in the career, adding more properties along the way. Our first real estate investment required a downpayment of 36k. Over the years, the real estate has added a significant amount to the net worth, and additionally the real estate throws off significant passive income every year that is tax protected by depreciation deductions.

Finally, I did the entrepreneurial thing, building a small start-up side business early in the career to a substantial size much later on when I decided to focus more energy after cutting back to part time patient care. The business now has an impressive annual gross revenue and annual profit. This has been the home run in all of this. The value of the business currently represents around half of our net worth.

By hitting the jackpot on all 3 pathways, we are at a place financially that I never dreamed possible. It's weird because I feel like a simple doc who works hard to achieve excellence in the care of my patients, who pays careful attention to how I treat my colleagues, and who applies thought and discipline in my approach to investing. When I look at the net worth statement, I say, "Who is this person who achieved so much success? That cannot be me." I also feel it is important to remain humble and to practice stealth wealth. Thankfully this forum allows a degree of anonymity where we can ask questions, learn, and share our success stories without divulging our identity.

[Hatton]

I primarily took path 1. I used to invest primarily in individual stocks and did well but it consumed my free time. I have been indexing for the last 10 years. I also invested in a surgicenter and a hospital. I also owned my practice. I cannot complain. I have done well enough to have a secure retirement and basically can do anything I want.

[ENT Doc]

Private practice or surgery center buy in is tying your lasso to a highly idiosyncratic business, similar to investing in a single stock - not advocated for as part of Pathway 1. It is not entrepreneurial by the definitions put forward either since that didn’t involve starting something. I would amend the Pathway 3 to say 3b: business ownership.