Invest for Less Volatility With Alternatives

Being a physician does not necessarily come with the level of financial literacy needed to manage our above-average income. I see money lost regularly when other doctors make stock picks and other investment recommendations without experience or expertise to back up their “forecasts.”

As physicians, we deal with enough chaos on a daily basis that we don’t need that same chaos when it comes to our finances. Yet, when we invest in the stock market—whether we do it on our own, through our 401(k)s, or through advisors—we are inviting the same type of chaos and volatility into our financial lives.

There’s no science to the stock market. Stock market performance is purely a creature of investor mood and sentiment. Investors don’t make investment decisions based on careful analysis of the data and numbers; they make decisions based on hunches and emotions, all influenced by biases. Cable news talking heads, social media, neighbors, golf buddies, country club cronies, and cigar friends all have more potential sway over stock market performance than anything tangible or concrete.

Why put your financial future in the hands of your neighbors?

When you invest in the stock market, you’re entrusting your financial future to your neighbors. Most stock investors base their investment decisions on what they think others are doing or not doing. Many are looking for that next big home run, which most will never find.

Don’t invest in long shots. They rarely pay off. As physicians, we are easy targets to become “financial friends” to family members, college friends, and other colleagues, all eager for your attention to propose the next big thing, the latest insider tip on the next alt coin, or their idea for Shark Tank. Don’t listen to them. They don’t hold the key to wealth.

The key to wealth isn’t the next big thing. The key to wealth is already here.

The key to wealth isn’t playing the up-and-down game of the stock market—buying low and hoping to hit it big on the upswing. The average investor plays this game every day, and most fail at it.

The key to wealth is avoiding the volatility of the stock market and not playing the same game that your neighbors are playing.

​​The ultra-wealthy aren’t playing this game, and they avoid volatility to build and maintain wealth. They do this by investing in alternative investments.

No alternative investment will do for sophisticated investors. While alternatives cover a broad category of investments, there are only two that are coveted by sophisticated investors, like the ultra-wealthy, institutional investors, and high-income individuals. These two segments, which consistently constitute more than 50% of the portfolio of the ultra-wealthy, are commercial real estate (CRE) and investments in income-producing private businesses (i.e., private equity).

Why CRE and private equity?

  • Illiquid (insulated from investor sentiment and market volatility because they’re not traded on the public markets).
  • Passive (teaming with the right experts and partners allows you to keep your day job and make money in your sleep).
  • Income (cash flow) can be reinvested to compound wealth and grow income.
  • Capital preservation (hard assets cannot disappear overnight).
  • Tax benefits: passive investments structured as partnerships offer significant tax benefits not available with traditional investments.

Uncertainty and volatility are what drive investor stress and anxiety. That’s why smart investors alleviate themselves of this stress by taking their investments out of the hands of the Wall Street crowds and putting them into the private markets. And by teaming up with seasoned experts with a track record of success, they also relieve themselves of the knowledge and high capital hurdles of investing for themselves.