I am fortunate to have spoken to many healthcare professionals over the years and also to have presented at many different education and practice seminars. Two extremely common questions that I am asked by those dentists in practice, or even those working as associates, is how to invest their profits and what are good investment ideas for them generally.
Often, on a one-on-one basis, those conversations lead to a direct discussion on a share portfolio or something more tangible such as how to structure a small property development and the pitfalls thereon.
I am extremely supportive of anyone looking to diversify their investment profile and also create wealth for themselves and their family, but one key observation that I would make is that this is often putting the cart before the horse. Whilst all of us in business need to be focussed on investment external to our practice, our primary focus should always be on developing ourselves, professionally, clinically and also investing in our own practices.
Investment returns
If we look to the ASX Top 100 performance for the past few years we can see that the index rose over 20% per annum. However, if we also look to the ASX index over a longer period – the past 30 years including the Global Financial Crisis (GFC) – we can see that the index performed at closer to 5% per annum in terms of growth. However, if you had acquired your investments just prior to the GFC, then sold during the GFC, you would have lost approximately 50% of your capital. So timing is everything!
Looking separately at the dividend yield on the majority of the market we can see that typical dividend yields run at 5–7% for what are deemed blue chip or safe stocks. In simple maths then, if you were to invest $1 million in blue chip stocks you would hope (not unreasonably) to receive at least $50,000 a year in dividend yield from your $1 million invested.
So, $1 million capital outlay = $50,000 annual yield in a volatile investment class. This of course doesn’t take into account the cost of borrowing to acquire the portfolio or any contemplation of inflation to reduce the yield to normalised or net of inflation yield.
So where am I going with this?
Education and training returns on your “Investment”
The answer that I typically give dentists when I am engaged in the discussion about investment is as follows:
Except in rare circumstances (Sir Richard Branson) most of us are “really” good at one thing only. It’s a lot easier therefore to get better at that thing, than it is to be good at many things, i.e. why not invest more in yourself as a dentist?
It’s a lot easier to go from being a good to a great dentist than it is to go from no experience as a property developer or stock market investor to a very good one.
The risks in investing in yourself are a lot less as well. Unfortunately, I’ve seen many dentists over the years destroy a thriving practice, as their attention was drawn away from the practice due to a non-practice investment going south. Your greatest financial asset is your ability to generate income; no investment will ever give you the safe, risk-free return that investing in yourself will do.
As noted prior, you would need $1 million in the stock market to get a “safe” investment return of $50,000 per annum.
Would you need to invest a further $1 million into your education to generate an additional $50,000 in practice revenue? Of course not!
Further education can even be free. Think of the various limbs of your practice and your clinical skill set and reflect on where further education or training could help you develop. Here are just a few ideas:
- Business – How well do you run a business; could coaching help?
- Employer – Are you a good employer? What’s your EQ level? Reduced staff turnover and greater staff retention almost always equals higher revenue and profitability.
- Marketer – How well do you interact with patients? How well do you convert treatment plans? How well do you market the practice to potential patients and the community?
- Clinical – Which procedures are you referring out of the practice? Why not undertake postgraduate education and training to augment your clinical offering?
These are just a few ideas to reflect upon. As a commercial observation, to provide the best healthcare for your patients you need to operate a profitable practice. The practices that we act for in an advisory capacity, where the principals invest in training, development and education, outperform those that don’t. Your most important investment and business asset is yourself, so invest in it.
By Heath Stewart, Chartered Accountant and Director
CA, B.Com, M.Tax, CTA, Dip.FS (FP)
This article was first published in NSW Denstist Magazine, August issue (ADA NSW Branch).