Preserve Your Reserves

I do like simple things. There is no truer test of a genius then someone who can take something that is seemingly very complex and reduce it down to a simplicity. One of the reasons I admire private practice health care professionals is their ability to take a complex case with a patient, apply their skill, and make a person or a pet feel better again!

In my field, investing money has become very much a complexity. There are thousands upon thousands of mutual funds, stocks, Exchange Traded Funds (ETFs), and a multitude of other financial instruments all being pushed on the consumer. It is no wonder most of the practice owners I meet with cannot answer some very basic questions in regards to what they are investing in. In my experience they really do not fully understand the risks they are taking with their reserves either. So let me take the concept of investing money and make it very simple for you:

Preserve your Reserves

When I say reserves, let me be clear, this is the money you are saving to create your GMMI (Guaranteed Monthly Minimum Income). This is a passive stream of income which all practice owners should be building. It is designed to allow you to pay for your basic lifestyle without having to rely on ANY business income. It includes your IRAs, 401(k)s, bank accounts, brokerage accounts, cash value insurance, annuities, and any other accounts which are pegged for future use. Think of this as your House money. There should be a constant mantra which you are repeating to yourself as to how this money should be invested:

Preserve your Reserves

Unfortunately, I see practice owners starting to drink the proverbial Kool-Aid again when it comes to their investments. The stock market is at all-time highs and for some reason “investment amnesia syndrome” has reared its ugly head with everyone believing that the current 20-25% annual rates of return enjoyed in the stock market will somehow magically continue like a beautiful fairy tale. We all seem to forget the horrific 50% declines in our accounts during the 2000-2002 market crash and again in 2008-2009. Do you really believe anything has fundamentally changed in our system which will prevent such a drop from happening again? Breathe deeply and say it with me:

Preserve your Reserves

I generally try to stay away from logic when trying to explain to practice owners why they should invest more conservatively for their reserves because it seems that money won is twice as sweet as money earned and all logic goes out the window when you see your accounts double or triple in value. Just how much risk does one assume to get a 20-25% rate of return? Let’s use your practice as an example: If your practice is running on all cylinders, then you should be able to recognize a 25-35% (depending on industry) rate of return. Said another way, if you have a $1,000,000 gross income practice then your personal compensation should be $250-300k per year. How much effort did you need to put forth to obtain that amount of return? Is there a guarantee that your practice will generate that type of return every year? Could some kind of incident like a key employee leaving, restrictive governmental regulations, bad weather, or personal health issues cause your practice to have significant cash flow problems? I ask these questions because I want you to think about these things the next time you see your mutual funds or stock market accounts go up 20-30%. Think about the risk that every company in your account is subjected to in order to earn that high rate of return. Nothing is free, and the returns you earn in the stock market do not come without an ENORMOUS amount of risk of principal and potential volatility. You take enough risk in YOUR business, why subject your reserves to other people’s risk?

Preserve your Reserves

I want you take risks, I want you to shoot for the stars and be aggressive, I want you to expand and go big, I want you to live a purposeful life and create an enormous amount of abundance for you and your family. Most of you went to school for over 7 years because you didn’t want to live an ordinary life. You wanted to be exceptional. Why then base your financial success on things you have no control over? Make a ton of money in your practice, take 10% of that and invest it in places where the money is protected, and go live that life you always dreamed of.
It really is that simple.