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How Successful Dentists Navigate Financial Storms
Summary:
Recent years have reminded dental practice owners that financial markets don't always trend upward—a lesson we likely all know—but they can also decline in unexpected ways. We can't predict the next economic curveball or when it will occur. However, history suggests that at some point, we'll again be caught off guard by an unforeseen economic shift affecting various asset classes.
Recent years have reminded dental practice owners that financial markets don't always trend upward—a lesson we likely all know—but they can also decline in unexpected ways. We can't predict the next economic curveball or when it will occur. However, history suggests that at some point, we'll again be caught off guard by an unforeseen economic shift affecting various asset classes.
With this in mind, let's revisit some key strategies commonly employed by highly successful dentists during challenging financial times. By understanding how affluent dental professionals work to protect and even grow their wealth during downturns, you can adopt similar approaches when the economic outlook appears grim.
Eight action steps
Here are some moves—both major and minor—that we see prosperous dentists making during economic downturns:
Important: Not all of these strategies may be suitable for your situation. The right decisions for you will, as always, depend on a wide range of factors specific to your dental practice and personal financial goals.
- Know the facts. Uncertain times can easily provoke anxiety, leading to emotional financial decisions—which rarely end well. Avoid panicking and instead find ways to stay the course (assuming you have a solid financial plan that still aligns with your objectives). Strive to reinforce the rational part of your brain. Facts can be your greatest allies here. When you see evidence showing, for example, that bear markets are relatively infrequent or that markets often recover rapidly from downturns, it can help reactivate your logical thinking. Consult with financial professionals familiar with the dental industry for data that can help you see the bigger picture and historical trends.
- Manage emotions. That said, facts alone aren't always sufficient to alleviate the fear that "this time it's different." Behavioral experts recommend assessing whether you're engaging in catastrophic thinking. Try this approach: Acknowledge your thoughts—yes, the entire dental industry could potentially suffer due to recent event X. But ask yourself: Is that the most likely outcome? Is it even 10% or 20% likely to happen? What scenario is much more probable? This reality check can help prevent the assumption that the worst is inevitable, potentially avoiding costly shortsighted decisions for your practice.
USING DOWNTURNS TO YOUR ADVANTAGE
- Use gifting to secure the future. Gifting assets to one or more irrevocable trusts is a common strategy in estate planning for dental practice owners. A significant downturn can allow you to gift larger amounts at a lower tax rate—potentially enabling more tax-deferred growth of the gifted assets. Ultimately, gifts of stocks or practice shares at depressed prices can help secure a better financial future for your beneficiaries.
- Alter foundational strategies. If you're considering significant, wholesale changes in your financial plan—such as shifting to an entirely different investment approach for your practice's profits—a market downturn can be an opportune time. The reason is that you may be able to restructure large portions of your existing portfolio in a tax-efficient manner, potentially reducing capital gains taxes compared to other times.
- Identify undervalued assets. Challenging economic times can present bargains in various financial categories—but successful dentists know to look beyond just equities. You might find opportunities to acquire other dental practices, invest in cutting-edge dental technology at discounted prices, or expand your real estate portfolio with properties that could house future practice locations.
- Convert an IRA. It's becoming increasingly common for high-net-worth dentists to convert their traditional IRAs to Roth IRAs (which offer, among other benefits, tax-free withdrawals in retirement and continued tax-free growth). Converting during a market downturn means paying a lower tax rate compared to the eventual growth of the account—although it can result in a substantial tax bill at the time of conversion.
- Take advantage of shifting trends. Major economic and market surprises often lead to changes in investment leaders and laggards. That's why some savvy dental entrepreneurs position themselves to capitalize on emerging opportunities arising from changing dynamics in healthcare economics and other factors affecting the dental industry.
- Revisit financial goals and values. Successful dentists tend to recognize that turbulent periods are not the time to bury their heads in the sand. Instead, they make a habit of self-reflection—examining their existing financial goals and values for themselves, their families, and their practices, and assessing whether any revisions are necessary. For example, some dental professionals' philanthropic focus might shift toward oral health education charities during economic downturns. Significant changes often bring about shifts in our interests and deeper beliefs. For wealth to support our key goals, it needs to align with what we care about most in both our personal and professional lives.
Ultimately, many of the "secrets" to how successful dentists approach market downturns aren't mysterious. They prepare to weather storms, stay calm under stress, seek opportunities when appropriate, and evaluate whether significant changes are needed. These are steps all dental practice owners can take before and during periods of uncertainty. And of course, we can seek professional guidance tailored to the dental industry that can help us stay on track and make informed decisions for our practices and personal finances.
Tim McNeely
Advisor to Dental Entrepueriers
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This material is intended to be used for educational purposes and does not constitute a solicitation to purchase a security or investment advisory services. Some material on this site has been researched and prepared by BSW Inner Circle and its affiliates, CEG Worldwide, LLC and AES Nation, LLC. Timothy J McNeely has retained AES Nation to conduct research and prepare informational materials for his use. Mr. McNeely is a member of CEG Roundtable and pays an annual fee for these services. Mr. McNeely is involved in these activities through The LifeStone Companies.
Some materials is published by the VFO Inner Circle, a global financial concierge group working with affluent individuals and families and is distributed with its permission. Copyright by AES Nation, LLC. This report is intended to be used for educational purposes only and does not constitute a solicitation to purchase any security or advisory services. Past performance is no guarantee of future results. An investment in any security involves significant risks and any investment may lose value. Refer to all risk disclosures related to each security product carefully before investing..
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