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Investing for Doctors: Is Low-Risk Investing a Good Investment Strategy for You?

Published July 06, 2021

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Financial Insights
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Low-risk investing can be a sensible approach for risk-averse doctors. It’s a way for busy doctors to build wealth with little effort, albeit at lower rates of return than other more risk tolerant approaches. In this article, we’ll review what low-risk investments are, and take a look at different types and when they’re a good idea. Keep reading to learn more.

What are low-risk investments?

Low-risk investments are relatively unlikely to lose money in the short-term. These types of investments aren’t volatile but due to their low risk, they typically offer modest returns. High-risk investments, such as commodities, derivatives, and some equities can be subject to wide price fluctuations and permanent losses, as well as potentially higher returns.

Types of low-risk investments

Some low-risk investments are:

Traditional savings accounts

A traditional savings account at a bank or credit union is usually just a place to park your money. If you want to use the money in your savings account, you generally have to either withdraw or transfer it to your checking account. They typically pay low interest rates.

Online high-yield savings accounts

Online high-yield savings accounts are usually offered by online banks that don’t have brick and mortar branches. They tend to pay higher interest rates than the national savings average.

Certificates of deposit

A certificate of deposit (CD) is a type of savings account that has a fixed maturity date and term length. When it’s time to cash in, you’ll receive your original amount plus accrued interest. CDs don’t usually have monthly fees, but you could face a penalty for early withdrawal.

Money market accounts

A money market account is an interest-bearing deposit account that typically includes debit card and check capabilities. You can think of it as a cross between a savings account and a checking account.

Cash-management accounts

A cash-management account is a cash account often offered by brokerages. They often have checking, savings, and investing capabilities.

Treasury bills, notes, and bonds

Treasury bills, notes, and bonds are different types of fixed-income securities offered by the federal government. The main difference between them is their maturity dates.

  • Treasury Bills: T-bills commonly mature anywhere from 4 weeks to 1 year. They’re offered at a discount to their face value (the dollar value) of the bill. The face value is paid at the time of maturity. The difference between the discounted price paid and the face value of the bill is the interest earned.
  • Treasury Notes: T-notes mature between 2 to 10 years. They have semi-annual interest payments.
  • Treasury Bonds: T-bonds mature between 10 and 30 years and purchasers receive fixed interest payments every 6 months. They typically offer the highest interest rates of the three because they take the longest to mature.

What rate of return do low-risk investments typically have?

Low-risk investments typically have low returns. In exchange for security, you’re giving up the possibility of earning more for your money. Investments with higher returns generally entail higher risk.

When are low-risk investments a good idea?

Low-risk investments are best if:

  • You know you’ll need to withdraw the money in the near future.
  • You’re creating an emergency fund.
  • You don’t yet have an investment plan, and want to keep your money somewhere safe.

Best options for investing while in medical school, as a resident, and an attending

Low-risk investments can be a good option for risk-averse, busy doctors because they don’t demand much in terms of time or energy and can ensure that your money will be available to you in the short-term. Other types of investments, such as real estate, are less liquid and potentially higher risk.

Low-risk investments can be a sensible component of an investment strategy, but they shouldn’t necessarily make up your entire portfolio. The low returns on low-risk products probably won’t help you save enough for your future and/or keep up with inflation. Your portfolio should ideally be a mix of different investment products. For example, a mix of stocks and bonds can create a more diversified portfolio that will likely earn higher returns in the long run. You can learn more about the fundamentals of investing here.

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