I have often been asked by graduating Dentists, "How can I invest in a new dental practice and still save for my future?"
This is a tougher question than just saying if you make a certain amount above what is paying for you practice, just pay yourself. The problem with this is that a dentist looks at investing in their practice as an investment. And it is! But it takes time, no different than buying a Stock, a Mutual Fund or an ETF. These all take time too. But the dental business is based on growth of their clientele. Without patients there is no business. Banks are clamoring at new dentists to borrow for a new practice, and it is wonderful in a low interest rate environment. But the trap here is that debt problem that those who like to have zero debt are now behind the 8 ball. So one must be cautious starting out managing their practice. A good accountant can help guide you on that side and professionals like accountants, lawyers and Wealth Managers are going to be necessary to help you establish yourself.
I find that those that come to me early on in their careers see the whole picture of Wealth Management. This does not just mean investing, but Estate Planning, Financial Planning, integrating your Will into the big picture and so much more. Gone are the days of stock pickers. Today is about setting goals like travel, that cottage by the lake, Intergenerational Transfer of Wealth.
This brings us back to the question, "How can I invest in a new dental practice and still save for my future?"
I like to use the principals of the book the Wealthy Barber by David Chilton. Set aside 10% of your earning each month and sock it away in an investment, like a mutual fund. The one thing we have in Canada that many are not taking advantage of is the TFSA. This is a wonderful tool that allows you to save money Tax Free, whether you are making Capital Gains, Interest Income or Dividend Income, this money can be withdrawn tax free! As you put money away in this vehicle, it will add up over the years as you are using the principal of Dollar Cost Averaging as well. An example of dollar cost averaging can show you just how great it is. If you were to put in $100/month every year for 10 years earning you an average rate of return of 7.3%, your total outlay of cash would be $13,100 and your portfolio value would be $22,685. Your value increased by $9,585. You are creating wealth slowly but surely. When you start to establish your business and you can afford to set aside more money, than Insurance components, Tax Advantaged Investing and Retirement Planning will be important.
Please feel free to call me to help guide you further on this discussion.
Tushar Kumar, Wealth Advisor
RBC Domionion Securities