How to Narrow Down Your Investment Choices

How do you narrow down your investment choices and what types of investment choices do doctors have? 

It might startle you to know that the vast majority of private workers have a defined benefit plan, if you are one of these people, your company is overseeing your retirement plan.

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If you are not part of this crowd, you have to manage your own portfolio and investment choices. 

You need to understand what a portfolio manager does, or what his job surrounds (which is to allocate money between your investments).

In order to meet that role, you’ll need to learn to think like a portfolio manager. 

Decision Making

What is your investment process?

How do you make your decisions?

Let me throw out two words that will streamline the decision-making process in regard to your assets.


  • Stocks: cash flow, dividends, earnings
  • Bonds: interest rates


  • The goal is making gains, but you risk loss, no guarantee you have with investments

Do you see the difference?

Subscribe to the Financial Residency PodcastWhen you are thinking about your investment choices, you expect a positive return. Whereas with speculation, there is no cash flow, so you expect either it is positive or negative. It’s about changes in market value.

You should set the groundwork for your investments…with investments. 

Tell Me About It

Are you able to explain the process of your investment choices?

  • What actually drives the return?

It’s been proven that the ability to explain how something works proves that you have a real understanding of how it works. 

I think this is the most important first step. 

If you don’t truly understand how it all fits together, then you have no business buying it or investing in it (hoping that it might work out). 

Minimum Knowledge 

What do you need to know in order to jump into a venture?

You might want to know some basic knowledge when looking at investment choices since as a physician you are on target to invest.

There are individuals who have an investment policy statement–and others who don’t. It’s considered the strategic plan.

However, since you are either a physician or married to a physician, it’s better to have it written down. 

If you were a professional money manager or portfolio manager the answer would be different but as a busy professional who has a full plate…an investment policy regarding your investment choices is a good idea!

Do you know who is selling the investment or on the other side of the trade?

There are times when finding out the information comes about intrinsically. An example would be when we make a major purchase. We definitely want to find out more about it. Who is the seller? What is the reputation of the seller, and producer?

That’s not true when we are making investment choices, because the current trend is that trades are done by algorithms. 

Now, you won’t buy a stock if you don’t feel the price is right. It’s even easier to buy an index fund.


Simply, index funds take for granted that the stocks are priced accurately. 

If you think an individual stock is undervalued, you’ll need to articulate why you feel that way. You don’t want to delve into an area that you don’t understand. 

That’s why there are a lot of people who like index funds.

There are asset classes that are more active. Let me give you an example, there is a type of mutual fund (closed-in fund), that is held by individuals, but is traded on an exchange. The problem is the people panic and sell. 

You can compare the value of the assets to the market price…which gives an average discount for closed-in funds about 6%.

The good side is that you’re able to see the net asset value. 

Start-ups as Speculation

Are you jumping on the start-up bandwagon?

A lot of people consider them one of the many investment choices out there. There is a problem when you don’t realize this is considered a speculative investment. That means there is considerable risk involved. 

You’ll need to ask questions, one of them has to be what is needed to make the start-up a success? Also, keep in mind that most new businesses fail in the first three years.

It’s incredibly common that investment choices in start-ups (aka venture capital investments) fail, which increases the pressure on an individual investor.

In such a situation, it’s easy to allot too much money in such a risky venture. 

  • Ask yourself: Are you willing to lose all of the money you invested?

There is potential for great reward–or loss! 

Conservative Investor

Are you into high risk or conservative investment choices?

Let’s say you are a conservative investor. 

What percentage of your net worth or investments would you allocate as a conservative investment? 

That depends on whether you are talking about investment choices or speculation.

The answer is 10% (or possibly less) to speculation (examples are cryptocurrency, start-up or gold). 

Let’s say you had a million-dollar portfolio, then 10% or Less would be allocated to things that are speculative (things you could afford to totally risk losing your money). 

Speculation is one of the high-risk investment choices.

Being conservative means investing the other 90% in things that you understand (stocks, bonds, traditional investments). 

Conservative is one of the slow but sure investment choices.

Perfect Asset Allocation

There is no such thing…

Nor is there a perfect investment.

That means we have investment policy changes.

We are seeking perfection in our investing, and in one way I approach it in there’s this concept of modern portfolio theory. 

There is a theory for deciding the optimal asset allocation for individuals (sometimes financial planners use it). There is no such thing as a perfect portfolio. 

The asset allocation models, which indicate that you need an expected return and volatility of every asset class.


What is the foundation of your investment choices?

Your asset allocation should be based on a foundation of stocks and bonds (with additional investment choices for variety).

Let’s say you’ve built your foundation, and you are a new attending physician. You might be willing to take bigger risks based on the time that you have to recoup any losses.

Invest In a Single Family Real Estate Like YesterdayHaving a variety of asset categories protects your investment choices against the vagaries of the market, since the different categories tend to move up and down on different cycles. It’s good for you as an investor, that they don’t move in unison.

Your goal is to choose your assets with an eye toward meeting your financial goals, while also working around your level of risk tolerance.

There are books and online asset allocation calculators to help you decide which asset allocation model is best for you. The model you choose will depend on your goals. Once you become an experienced investor and understand how all the parts to making investment choices fit together–you may even create your own allocation model!

Now it’s time to become flexible, and adaptable!

Which Addition Next?

You’ve built a foundation out of stocks and bonds, so which investment should you go for next? 

First, let’s take a look at your percentage mix.

Focus on stocks and estimate the expected return over the next ten years based:

  • Current cash flow
  • Earnings
  • Valuations

You are not going to think about how volatile your investment choices are. You think about the harm that might come from them falling at least 50% (or more). 

How far are you from retirement? 

If you’re getting close and you mostly have stocks it could mean trouble, in the form of being at the mercy of the stock market. 

You’ll need to diversify with bonds and cash. However, you’ll need to look at the yield.

At the present moment, cash is getting a two percent yield (equal to 30-year bonds), so you can use your calculator to figure it up.

Then look at buying global index funds or an ETF that owns thousands of securities. It really depends on your preferences. 

There are people who like to keep it simple, and others who like investment choices working in a variety of different ways.

What if you are a new attending physician, who is just starting out?

How would your investment choices look, if there was a 60% decline when you are just starting to invest? 

Look at your assets, the first one is your financial assets, which is what you are considering. However, you can also think about your human capital (lifetime earning stream). 

The scenario looks at your earning potential for the next 30 years, so you have that potential converted into future financial assets!

With that time and money stretching out in front of you, there’s the ability to be a more aggressive investor, and have more in stocks. 

It also depends on how much money is in the portfolio. If it’s very large and it falls by half, you may not feel the impact on your lifestyle. On the other hand, if it’s small, you may feel the impact quickly!

The Future of Index Investing

What is the future of index investing?

There is an analogy that index investing can be so large that it’s herd investing, and it’s like a bubble. That bubble is expected to eventually pop. 

While everyone is not indexing, it still has benefits. The biggest benefit is that it’s an easy way to invest. 

You may have heard of fundamental indexing, which is weighted by revenue earnings. The benefit of being weighted in that way is with most index funds the bigger the holding, the bigger the weight is going to be.

What if the stocks aren’t priced right?

An example is when investors are forcing the price to increase too much. The stocks will have a sizable weight index fund. You can compare that to something that’s weighted with revenue or earnings. The weights will be smaller with those.

Physician Wealth ServicesThe fundamental indexing approach will underweight the most expensive companies and overweight cheaper companies. 

There is never a time to say, indexing is bad or good. It depends on what’s inside. This goes back to being able to explain how an index works, what it involves, what it contains.

You’ll still need to understand the research and to know where you’re putting your money. There’s never a time to be an ostrich. 

You can’t just follow the crowd and think that if it worked for someone else it will work for you.


Just as your budget needs to be tailored to your individual situation and goals–so do your investment choices.

There are plenty of times in every portfolio’s lifetime when it needs to be rebalanced. Market changes will alter your portfolio, and your financial goals will change.

You’ll need to reassess your assets.

You may need to buy or sell assets to protect yourself against risk, and meet your personal financial goals.

You can rebalance monthly, quarterly, or annually, or when your asset percentage changes over 5%.

If you haven’t started thinking through how you’re investing, now is the time. Keep in mind how your investment choices relate to your overall finances, the bigger picture, and the future that you dream about.

What type of investment choices have you made?

Have you created your own allocation model?

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