Despite typically earning good money, doctors are still being hit by inflation. How can medical professionals protect and grow their wealth?
Inflation is being experienced in Australia for the first time in many years.
Its impact will be felt on us all in different ways. The Consumer Price Index rose 3.5% in Australia in 2021.
But the increase in the actual cost of living was much higher and isn’t expected to abate any time soon.
Most vulnerable are doctors close to retirement
Rising prices and the eroding of our purchasing power might have senior medicos reconsidering when and if they can afford to hang up the stethoscope.
But with changing economic conditions comes opportunity.
And with some solid advice and careful planning, everyone can prepare for the prevailing winds.
Where to invest
Whether you are just starting out in the medical profession, a high-wage earner or close to calling it a day, there are always savvy investments to be made with rising inflation.
But there are bad investments too and key changes you should consider making to your portfolio, especially if you have borrowed to invest.
Here’s some key considerations to take on with expert advice:
Gold – Physical gold has historically performed well in times of high inflation, particularly when the inflation rate exceeds interest rates.
REITs – Real Estate Investment Trusts are companies that own and operate real estate that produces income. These commercial properties are good buys and may include shopping centres, hotels, apartments buildings, hospitals and warehouses.
Commodities – Stocks or EFTs (Exchange Traded Funds) linked to commodities such as oil or iron ore are a safe bet. It is one of the better ways to negate the impact of rising oil prices. Utilities, telecommunication companies and established businesses with big balance sheets are also reliable options.
Property – Any property or infrastructure assets where income is indexed to the inflation rates is a shrewd way to take the sting out of rising costs by getting them to work in your favour. They perform well in all economic conditions and enjoy higher revenue when inflation increases. Property in Australia is typically tried and true.
Where not to invest
Bonds – Rising interest rates makes bonds far less attractive by eroding their value.
Long-term Fixed Income Investments – If interest rates rise, the value of the security falls as investors flee, chasing higher yields. The longer the term, the greater the risk. Shorter-term alternatives including money market funds prove much wiser.
Other measures to consider
It’s not all about investing. There are other means you can take to guard against rising inflation.
Review your budget – Check what you are spending at home and make cuts where you can. That may mean a night or two fewer per week dining out.
Retirees may want to consider downsizing from that big home now the kids have moved out.
Reduce your debt – As inflation rises, interest rates often follow and that’s bad news if you have debt. Credit card debt is an absolute no-no. Clear whatever debt you can.
Can you afford to retire?
Not many doctors closing in on retirement will have considered inflation a factor – until now.
For those in the workforce, wages usually keep pace with inflation.
But once you are retired, inflation can start eating through your savings very quickly.
As long as you plan ahead, the road will be a lot less bumpy.
The main impacts of inflation for retirees are:
Eroding the value of your nest egg – A basket of goods in 2001 worth $100 would cost $160 by 2021. That’s a 60% increase and is the result of an average inflation rate of just 2.4% per annum.
It means that your nest egg of $500,000 in 2001 would effectively be worth just $300,000 two decades later.
Pension pain – If you are eligible for a pension or part-pension, be aware that while it is indexed twice yearly to the CPI, many believe it still fails to keep up with inflation. Increases also don’t flow through until six months after the release of official government figures.
Negative returns – High inflation paves way for negative returns on some investments. If a term deposit pays 1% but inflation is climbing at 3%, your net return on your money is -2%.
Get advice today
Investing makes good sense whatever the economic conditions but in times of high inflation and potentially rising interest rates, it’s even more critical to get great advice and have a plan for all seasons.
Whatever your age and financial position, who better is there to talk to than experienced medical wealth experts who specialise in working with medical professionals?
Contact us today to discuss all of your investment needs and ensure you financial position is not just unscathed but enhanced during the current economic climate.
The information contained in this article is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.
Taxation, legal and other matters referred to on this website are of a general nature only and are based on Nitschke Nancarrow’s interpretation of laws existing at the time and should not be relied upon in place of appropriate professional advice. Those laws may change from time to time.
Nitschke Nancarrow specialises in accounting, tax and financial advice for superannuation.
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