Asset Allocation and Saving Your Way to Retirement

Dear Colleagues,

Welcome to this issue of The Physician's Financial Post. This bulletin is designed to guide physicians toward financial autonomy through thoughtful asset allocation and disciplined saving. We'll cover liquidity, risk, traditional and alternative investments, and practical allocation ideas to help you save effectively for retirement without sacrificing your current quality of life.

Key Definitions

Liquidity

How quickly and easily an asset can be converted to cash without a significant loss of value.

Liquidity risk is when you cannot meet short-term obligations or take advantage of investment opportunities because you cannot access cash promptly.

Counterparty Risk

Happens when a 3rd party in a financial contract may default on its obligations (i.e., a counterparty failing to honor a bond payment or redeem a derivative).

Illiquid Investments (examples)

• Investments with long lock-ups or hard-to-sell positions
• Private equity funds
• Non-traded real estate partnerships
• Certain private credit facilities
• Some venture capital investments, IPOs

We are going to see some private equity investment options surfacing in our retirement plans in the next few years. While these are not bad you must know the risks. It is not like pushing the sell button on your brokerage app.

"The How"

Before you invest in anything, you must ask yourself these questions first:

• How does this investment work?
• How can it go well?
• How can it go wrong?
• How do I get out of it if necessary?

The less liquid the investment the more time it takes to get that asset sold. Just be mindful to this when making any investment decisions.

Allocation: Core Principles

The goal is to accumulate wealth, attain financial autonomy, and save your way to retirement. This means balancing growth with liquidity and risk management, while living on what you need. This also means self-discipline and weathering market downturns and making poor decisions or speculative investments. You would tell a patient to give it time to think over the treatment option—you should do the same in your investing approach. Don't be a "casino trader". This type of trading is extremely risky.

Savings (Low-Risk Money)

This is your safety net and capital for opportunities. Examples include:

• Cash and cash equivalents
• Certificates of Deposit (CDs)
• Money market funds
• Short-term Treasuries (i.e. 3–12 month T-bills)

Maintain an emergency fund of 3–6 months of essential living expenses in highly liquid cash equivalents. Should the world go to a dark place then:

• "Cash is King"
• Cash is opportunity for taking advantage of severe market conditions
• Cash helps you to sleep at night

Traditional Investments

Growth and income, often inside tax-advantaged accounts:

• Stocks
• Bonds
• Inside tax-deferred vehicles
• 401(k), 403(b)
• Employer profit-sharing plans
• Pension plans (corporation sponsored)
• IRAs (Traditional, Roth)
• Education savings and planning vehicles
• 529 plans (college savings)

Use tax-advantaged accounts to maximize compounding, especially for long-horizon retirement goals.

Alternative Investments

Assets outside traditional stocks and bonds that may offer diversification and inflation hedging, often with different liquidity and risk profiles (investments that sometimes do not correlate in performance with current market conditions):

• Precious metals
• Income-producing real estate (i.e. real estate investment trusts or direct real estate with favorable management)
• Variable annuities with downside protection (buffers) to hedge risk
• Whole life or variable life insurance (as part of a broader estate and liquidity strategy)
• Being a partner/shareholder in your own practice (you have a vote, a say in how your company is run, as well as pride and ownership that you and others have built over many years).

Note: Alternative investments can offer diversification but may come with higher fees, longer lock-ups, valuation complexities, higher risk, and are not tax efficient. Perform due diligence and consider professional guidance.

Speculative and Less Liquid (Higher Risk, Lower Liquidity)

• Accredited investor opportunities (private placements, certain hedge funds)
• IPOs
• Cryptocurrencies

These should generally comprise a small portion of a well-diversified portfolio and be aligned with your risk tolerance.

Accredited Investor

In the U.S., an accredited investor typically includes individuals with a net worth above $1 million (excluding primary residence) or annual income above $200,000 (or $300,000 with a spouse) for the past two years. These thresholds vary by jurisdiction and should be confirmed with current regulatory guidance. This allows us as physicians to invest a slice of our disposable income for a potential moon shot reward. Not to be completely avoided but use an "all eyes and ears open" approach.

Illiquid investments can offer higher potential returns but require patience and long time horizons. Do your due diligence to evaluate for risk, liquidity, tax implications, fees, and alignment with your retirement timeline.

A Practical Plan to Save Your Way to Retirement

1. Build and maintain an emergency fund (3–6 months of essential expenses) in a liquid vehicle.
2. Maximize tax-advantaged retirement accounts (401(k)/403(b), IRA, Roth options) to take full advantage of compounding and employer matches.
3. Develop a diversified core portfolio in traditional assets (stocks and bonds) aligned with your risk tolerance.
4. Add diversification through alternatives with clear understanding of liquidity, fees, and risk.
5. Rebalance annually, or after significant life events, to maintain target allocations.
6. Review estate planning, insurance, and liquidity needs to ensure you're not assuming unnecessary risk in retirement planning.
7. Limit speculative allocations to a small portion of your portfolio and only after thorough due diligence.

Final Thoughts

You don't have to live like a pauper to save for tomorrow. The aim is mindful balance: spend on what you need, save intelligently, and structure your investments to support your goal of financial autonomy and a secure retirement. It is paramount that you meet with your financial professional on a regular basis. Enjoy all you have and continue to work towards a safe and secure financial future.

Until next time!
David Chesner, DO
Your Financial Wellness Coach

The Physician's Financial Post
Helping physicians navigate the holistic path to financial wellness.