The average dental school grad has over $287,331 in student loans.
This number is shocking and for many dentists, this debt can be a major roadblock when it comes planning their financial future.
If you’re a young dentist you may be wondering how and when to take the leap into investing. Especially if you owe a lot of money.
Well, luckily we’ve created a list of tips that will help you figure out the perfect time in your dental career to invest in the stock market.
As Soon as Possible
Start investing as early as you can. This seems obvious but most people underestimate how influential compound interest is.
In fact, according to legend, Albert Einstein once joked that compound interest is one of the most powerful forces in the universe.
Whether he said it or not, there’s definitely a lot of truth to it.
Let’s illustrate this. Imagine you want to retire at 67 with $1 million worth of investments and your interest rate is 6%.
If you start when your 25 you’ll need to invest $5400 per year to meet your goal. Begin at 30 and you’ll have to put away $7400 per year. However, at 40 you’ll need to invest roughly $15000 per year.
As our example shows when you start investing outweighs how much you start investing with.
You’ve Paid off High-Interest Debt
We’ve already shown you how powerful compound interest is when it comes to making money. Those same powers can work against you when it comes to debt. This is especially true for high-interest loans like credit cards.
If you have a credit card with an interest rate of 22% annually and with a balance of $5000. Over 10 years that card will cost over $44,235.
Clearly, high-interest debt can add up and take a huge portion of your income.
This makes paying off credit card debt an important step to accomplish before you start investing in stocks.
When You Have an Emergency Fund
Having an emergency fund is one of the first indicators that you’re ready to invest.
This provides you with living expenses so that you don’t have to dip into your investments if you lose your job.
This fund should contain at least three months worth of income. If you have $3500 worth of expenses each month then your emergency fund should have at least $10500 in it.
Keeping an emergency fund allows also you to avoid high-interest credit card debt. If you don’t have an extra money around in an emergency you may have to rely on high-interest debt like credit cards.
This can seriously damage your credit score and makes future investing impossible.
If and When to Invest in the Stock Market
One of the most important factors in determining when to invest is age. How old you are will dictate how much you should put away and what kind of investments you should choose. We’re going to show you how you can maximize earnings at any age.
In Your 30s
Your 30s are when you must start learning how to how to get into stocks.
One of the most important parts of stock market investing is doing research and following the stock market news. This allows you to know when to buy or sell and when to take advantage of market volatility.
Putting money into stocks has proven to be a better investment than bonds and cash. For example, a 10-year treasury bill on average earns a yearly interest rate of 4.91% while the S&P 500 stock earned an interest rate of 9.53%.
Though these investments make more money they can also be a huge gamble, especially in economically difficult times.
Luckily in your 30s, you’re young and more tolerant of risks. As a result, large changes in the market won’t have a drastic effect on your stock investment.
But stocks aren’t the only good investment to make in your 30s.
When you’re in your 30s you may want to settle down and decide where to live. This makes real estate the perfect investment. Whether it’s buying a home or a rental property these investments can pay off in the long run.
You can also invest in yourself by learning a new skill like a new language or getting an advanced degree. All of these things can lead to both personal satisfaction and increased career opportunities.
In Your 40s
In your 40s you should put more focus on investing in bonds rather than stocks. Though you can still make money in stocks at this point they should be a smaller part of your overall portfolio.
As you get older you’ll be more risk-averse. You’ll have less time to build compound interest which means that changes in the stock market can negatively affect your income.
At this age, you’ll want to concentrate on less volatile options like personal retirement accounts. You should also start investing aggressively in your 401(k) and IRA accounts.
In Your 50s
This is the age where you should seriously plan for retirement.
Much like in your 40s, put less money into stocks and more into bonds and other more stable investment opportunities.
There is an exception to this rule. If you plan to have social security and other sources of income you may put off dipping into your investments. This means you can invest in the stock market more and take on a bit more risk with your investments.
You should also consider other streams of income and other investment opportunities.
Want More Financial Tips?
Knowing how to invest in the stock market is a great way to help you build wealth.
But there’s more to making money than just stocks and bonds. If you want to more investment tips specifically for dentists check out our blog.
We’ll help you get started setting up your financial future today!