I don’t think it’s any secret I’m not a huge fan of the stock market. I’m always looking for opportunities outside of Wall Street that will increase and diversify my passive income streams in various asset classes.
As a physician, you have dedicated years of your life to your education and training, and you’ve likely built a successful career as a result. However, it’s important to remember that your work is not done when it comes to securing your financial future. It’s important to have a solid investment strategy in place to ensure financial stability outside of medicine. One way to do this is by investing in assets that are non-correlated to the stock market.
First, let’s define what we mean by non-correlated investments.
Essentially, these are investments that do not necessarily move in the same direction as the stock market. This means that if the stock market is performing poorly, the value of your non-correlated investments may still be increasing. Conversely, if the stock market is doing well, good non-correlated investments still may be doing well.
Here are a few reasons why physicians should consider this type of investing:
- Diversification: One of the main benefits of non-correlated investments is diversification. As a physician, you may have a significant portion of your net worth tied up in your practice, 401k, or other stock market-based “investments.” Investing in assets that do not move in the same direction as the stock market can help to diversify your portfolio and reduce overall risk. This is because if one asset class is performing poorly, the other asset class may be performing well, which can help to offset the losses. This diversification allows you to mitigate the risk of having all your eggs in one basket and can help you to achieve your financial goals in a more stable way.
- Stability: Another benefit of non-correlated investments is that they can provide a source of stable returns. For example, investments in real estate or a debt instrument tend to be less volatile than investments in stocks and can provide a steady stream of income. This can be especially beneficial for physicians who are nearing retirement and need to preserve their capital.
- Protection against inflation: Additionally, non-correlated investments can act as a hedge against inflation as their value may increase along with the cost of living. For example, investments in commodities like oil or mineral rights tend to perform well during periods of inflation as their prices tend to rise along with the cost of living. This can be beneficial for physicians as it helps to protect their purchasing power.
- Potential for higher returns: Alternative investments such as debt funds, private equity, and commodities can offer higher returns than traditional investments, which can be beneficial for physicians looking to grow their wealth.
- Tax benefits: Certain types of non-correlated investments, especially real estate and working interests in oil, can offer significant tax benefits, such as large deductions for depreciation and other expenses that can be used as tax deductions.
Some examples of non-correlated investments include:
- Real estate: Investing in real estate can provide a steady stream of rental income and the potential for driving appreciation in the value of the property. Additionally, there are tax benefits such as deductions for depreciation, mortgage interest, and other expenses associated with operating the property.
- Debt: Investing in a debt fund that lends to non-correlated markets is an excellent strategy for diversification. This is a type of investment in which the fund will loan money to an entity that borrows the funds for a defined period of time. They tend to be less volatile than stocks and can provide a steady stream of income.
- Commodities: Commodities such as oil, mineral rights, or Timber can act as a hedge against inflation and can provide a potential for accelerated income as inflation rises as well.
- Alternative investments: Alternative investments such as private equity can offer higher returns than traditional investments, which can be beneficial for physicians looking to grow their wealth.
Wrapping It All Up
It’s worth noting that no investment is completely uncorrelated with the stock market or other assets, and non-correlated investments also come with their own set of risks. For example, real estate investments can be affected by changes in the economy and interest rates. Alternative investments such as hedge funds and private equity are often less transparent and may involve higher fees. Additionally, commodities prices can be affected by natural disasters, changes in demand, and regulations. It’s important to do your due diligence with any investment you are considering. However, by diversifying your portfolio with non-correlated assets, you can help to mitigate overall risk and increase the potential for stable returns.
I strongly believe the pathway to financial freedom must involve incorporating as many passive income streams as possible. The more income streams you have from non-correlated investments, the more likely your portfolio will stay on a growth trajectory and have fewer down years, if any.
If you are seeking increased stability and returns, protection against inflation, and the ability to take advantage of tax benefits, I suggest giving strong consideration to investing in non-correlated markets as a way to diversify your portfolio.
Here’s to winning your time back!