The 7 Best Ways to Invest as a Medical Student

Medical students amass substantial student loan debt over the course of their education through college and medical school, but they are also joining one of the highest-paying professions in the nation. This poses a challenge because there is a long delay before this high earning potential is realized, and once it is there is often a strong temptation to take advantage of this well-earned income increase and live above one’s means. However, you can ensure responsible financial habits and robust wealth growth throughout your career by starting now to educate yourself and begin investing to make your money work for you, not against you. Read on to discover the best ways you can invest as a medical student.

1. Complete this Checklist to Improve Your Financial Independence and Prepare to Invest as a Medical Student

1. Protect yourself against identity fraud:

Change your passwords for financial service websites, keep track of your credit card accounts, and purchase renter’s insurance that covers identity theft.

2. Monitor your credit score through a credit reporting service:

Your credit score influences your eligibility for certain loans as well as interest rates for the loans you apply for. The higher your credit score, the lower the interest rates you will be eligible for, and the less you will pay over the life of the loan.

3. Avoid high-interest credit card debt:

Credit card debt carries an extremely high-interest rate and is especially damaging to the prospect of saving and investing as a medical student. If you already have credit card debt, prioritize reducing or eliminating it before investing.

4. Recognize that not all debt is bad:

Although credit card debt is particularly destructive, certain types of debt are important in your 20s and 30s for building your credit score (which increases with the number of accounts under your name). Productive debt is typically low interest, unlike credit card debt. It should also either have a manageable repayment plan (e.g., income-driven repayment) or be in special deferment with a freeze on interest accumulation, such as student loans have been during the COVID-19 pandemic.

5. Start an emergency fund:

Such a fund may not be necessary if your parents or other family members are able to support you if a costly emergency arises. If not, having a fund that can cover large surprise costs (like your car breaking down) will protect you against needing to take out additional loans, or worse, putting a charge on your credit card that you won’t be able to pay off by the due date.

2. Learn About Different Types of Investment Firms and Accounts

Once you complete the checklist above, you will be in an excellent financial position to begin investing any disposable income (i.e., money that isn’t going towards essentials such as rent, food, transportation, and student loan payments). In order to invest safely and wisely, you should know which investment firms are legitimate and trustworthy, and which employ deceptive methods to encourage risky investing behaviors. Some of the oldest and most trusted investment firms include Vanguard, Charles Schwab, and Fidelity. Robinhood, a much newer firm geared towards younger users, is easy to use and offers enticing advantages such as commission-free trading. However, it is known for promoting gambling-like behaviors and thus encouraging addiction. It is best to stick with one of the companies that have been around for decades.

3. Start a Retirement Fund

Many retirement funds, such as the well-known 401(k), are only offered through an employer. The retirement fund for individuals is called the individual retirement account (IRA). There are several types of IRAs, but the most common forms are the traditional IRA and the Roth IRA. They differ in when you pay taxes on your contributions. For a traditional IRA, you do not pay taxes on your contributions or on any investment earnings as long as the money remains in the account, but you pay taxes on your withdrawals during retirement. A Roth IRA is essentially the opposite: you pay taxes on your contributions, but your withdrawals are completely tax-free. Generally, a Roth IRA is better for a young saver who will be in a higher tax bracket during retirement. This applies to most medical students who have little to no income during medical school but will be high-earning physicians in high tax brackets at the end of their careers as they transition to retirement.

4. Add a Personal Brokerage Account When Planning How to Invest as a Medical Student

A retirement account should be the priority for investing early (or at any stage of life) because of the wonders of compound interest, which is how small sums grow exponentially across a period of several decades. Once you have opened an IRA with automatic investments, you can branch out and start investing in a personal brokerage account. This is an account for personal use, meaning the profits have no set purpose and you are not bound by the contribution limits and early withdrawal penalties that apply to IRAs. For example, if you are saving for a down payment on your first house, you might invest any leftover savings in a brokerage account and withdraw the cash when you are ready to purchase your home.

5. Be Wary of Cryptocurrency

The discussion on investing is incomplete today without mentioning cryptocurrency. Various cryptocurrencies (e.g., Bitcoin, Ethereum) are extremely popular because of their association with novel blockchain technology and their independence from Wall Street. However, there are serious dangers with cryptocurrencies that should make you reconsider investing in this medium rather than the stock market. To name a few:

1. Price fluctuation: cryptocurrency is one of the most volatile assets you can own
2. Liquidity risk: some trades are fulfilled at a significantly worse price than intended, or not at all, which is money lost
3. Bankruptcy risk: if a cryptocurrency exchange company goes bankrupt, some or all of your assets could be lost forever (an established firm like Charles Schwab is significantly less likely to go bankrupt than a smaller and newer company like bitFlyer)

Some of these dangers do exist for traditional mutual funds or exchange-traded funds (ETFs) traded through established investment firms, but they are much more pronounced for cryptocurrency investing. This is not to say that no one should invest in cryptocurrency. Rather, it is important to understand the inherent risks and that its unpredictability means it shares some features with gambling that traditional investing does not.

6. Invest Wisely in Tutoring and Advising

In narrow terms, investing means saving your money in an account where it will grow. However, you can think of investing more broadly as putting your money towards something that will help you financially, personally, or professionally. Some investments even achieve all of these goals. For example, tutoring has several advantages. Financially speaking, even though tutoring costs money in the short term, it increases your academic performance which makes you more competitive for medical specialties and positions that pay better. Personally, tutoring is helpful because it provides meaning and satisfaction by improving the knowledge or skills you need to be successful in your job. And, of course, the better your performance—especially on scored tests such as the MCAT, USMLE Step 2 CK, and COMLEX Level 1—the better job opportunities you will be considered for as a resident and attending physician. If you identify areas for improvement and invest smartly in tutoring or advising by EMP, you could be setting yourself up for incredible future returns.

7. Do Not Neglect Your Physical and Mental Health

Along the same vein, investing your money in foods and activities that will keep you healthy should be a top priority. There are real financial implications to this, as being sick is extremely expensive in the United States. The healthier you keep yourself, especially when you are younger, the more money you will save on medical expenses throughout your life. There is an even more important point, however: good health is priceless. There are times in life when we choose to prioritize schoolwork over things like cooking, exercising, or hobbies, and that’s OK; the medical field sometimes demands this. But it does not require completely sacrificing your health and happiness to be successful. Everyone will make their own decision about the balance they choose to maintain, but always remember that you can choose to readjust this balance if you are not satisfied with it. A burned-out person is not a good physician!

There are myriad ways to invest as a medical student, as well as important steps to take to reach financial independence and security. Not all of these investment strategies are purely financial because you are not just a future high-earning doctor. No, you are a medical student who is preparing for one of the most demanding careers out there while also trying to enjoy the present, probably with the burden of rapidly growing student debt. Consider this an introduction to the world of investing and take a deep dive into any topic that piqued your interest, and you will be well on your way towards improving your financial standing.