Many healthcare professionals find themselves responsible for their own retirement funding.
In many other types of careers, pensions and/or 401Ks with some degree of matching contributions from employers are commonplace. The same is typically not true for the optometrist. Saving and building your own retirement fund therefore becomes a necessity. There are countless avenues of investing strategies for optometrists and other healthcare professionals.
This series of articles serves as a very simple investing guide to help highlight few of the many investments available to help secure financial wealth well into your future.
Investing in the stock market is always a good first step into creating financial wealth and growth.
A stock is a share of ownership in a company. These shares can be bought and sold. When you purchase a share of stock, you become a part owner of the company, or a shareholder. The company is therefore owned by all the shareholders.
As the value of the company increases or decreases, so does the value of your shares in the company.
For example: If you were to purchase a share of X company for $50.00, and the company grows and increases their revenue and earnings over the course of a year, then as a result, your share of X company will likely be worth more than the original $50.00 you paid for it. It may be worth $55.00, which means your original $50.00 investment has grown $5.00 over the course of a year due to the success of the company as a whole. The opposite is also true if the company finds itself in financial trouble, or in a state of decreasing revenue and growth. If the opposite is true, your share of the company can be worth $40.00 after a year, or your original investment worth less than the $50.00 you originally paid. As such, it is important to know that stocks always pose a risk to your finances, but can also offer great reward.
One of the keys to investing in the stock market is to know that money is never lost or gained until a stock is actually sold.
In other words, if you purchase a share of X company on January 1st, 2015, at a price of $50.00, even if that share is worth $1,000.00 on March 1st, 2015, you have not made any money on your investment (or lost any money depending on alternate circumstances) unless you sell or relinquish ownership of your stake in the company. This is an important lesson because the value of a company can fluctuate wildly on a daily basis, a monthly basis, and obviously a yearly basis. Investing at a young age is extremely advantageous because it allows your initial investments time to grow as the economy grows. In addition, if the company you purchase a stake in has a less than favorable year, and the value of your shares decline, you are also afforded time for the company to turn itself around and recoup its value.
So why invest in the stock market if there is such high risk, and your investments can depreciate?
In general, stocks have stood the test of time and provided solid investment opportunities. As the economy grows, so does the valuation of companies and subsequently their shares. As companies increase profits and enjoy greater earnings, so do their shareholders.
“Since 1926, the S&P 500 (a stock market index made up of 500 large companies used to track overall health of the stock market) has produced an annualized total return (including capital gains and reinvested dividends) of 6.6 percent, after inflation. Those 86 years include the 1929-32 free-fall (when the Dow lost about 90 percent), the years just before World War II (when it fell by half), and the doldrums of 1966-81, when stocks were essentially flat.”1
A general rule of thumb has been that you can expect to earn around 7% a year on average in stocks. Considering retirement is something 30-40 years away for many of us, this is a good allotment of time to watch your investments grow.
While past performance is no indication of future success, it is difficult to argue with history.
Key facts to know about stocks:
- The stock market is a conglomerate of individual stocks. The stock market as a whole can move up while a specific stock can trend down and vice versa.
- Stocks have historically beat inflation over the course of time, and have provided good investments for long-term goals.
- There are many different kinds of stocks spanning all different types of sectors including technology, healthcare, commodities, and real estate.
- Stock prices can fluctuate wildly based on domestic and global news or rumors, and investor enthusiasm or skepticism.
- There are numerous ways to determine the true value of stock and whether or not it is in line with industry expectations.
- A diversified portfolio consisting of different types of stock in different sectors is the best way to protect your financial wealth.
Shares of some of the most successful companies in the world can be bought and sold in the stock market, including many in the ophthalmic industry.
Highlighted below are some companies many of us are familiar with, including their stock price activity over the last five years. It of course comes with a risk!
Regeneron Pharmaceuticals Inc – Maker of drug EYLEA®
A share of REGN purchased on January 8th, 2010 at roughly $24.00 would be worth $410.95 today! (Data as of January 1st, 2015)
Johnson & Johnson – Maker of ACUVUE®
A share of JNJ purchased on January 8th, 2010 at roughly $64.00 would be worth $104.57 today (data as of January 1st, 2015) excluding dividends (more on that later).
Novartis – Parent company of Alcon®
A share of NVS purchased on January 8th, 2010 at roughly $52.00 would be worth $92.66 today (data as of January 1st, 2015) excluding dividends.
Valeant Pharmaceuticals Intl Inc – Parent company of Bausch & Lomb
A share of VRX purchased on January 8th, 2010 at roughly $15.50 would be worth $166.33 today (data as of January 1st, 2015).
Allergan, Inc. – Maker of various opthalmic medications.
A share of AGN purchased on January 8th, 2010 at roughly $60.50 would be worth $212.59 today (data as of January 1st, 2015) excluding dividends.
As you can see, buying stock in various companies and holding for long periods of time can be very financially rewarding.
Despite periods of market downturn and economic turmoil, the overall long term trend is growth and increased share price. Purchasing stocks to hold in your brokerage account, IRA, or Roth IRA (more on that later) can help fund your retirement in your twilight years. Adding income generated from dividends with compounding interest over time, can provide a wealth of passive income.
Stay tuned for more information on dividends and DRIP accounts, IRAs, Roth IRAs, and other savings avenues in the future. In the meantime, get the discussion rolling, feel free to ask any questions regarding content within this article, or areas of financial and investment avenues you would like more information on.
1. “Is the 7 Percent Return for Stocks Extinct? – US News.” US News Money. N.p., 08 Aug. 2012. Web. 01 Jan. 2015.