5 questions with Darby Affeldt, DVM, RICP®
How and why should veterinarians diversify beyond investing in their practice? As you plan your 2022 investments strategies, keep these suggestions from Darby Affeldt, a DVM/financial advisor, in mind:
1. What are the benefits of diversifying assets?
Diversification is critical and is far more than choosing different funds/holdings in a portfolio. True diversification means holding assets with different locations, allocation and taxation—meaning owning assets which are taxed differently from one another; taxable, tax-deferred and tax-advantaged.
Asset location is straight forward—it’s not having all eggs in one basket. Owning a practice is usually a veterinarian’s largest asset, but there could be real estate, portfolios, insurance or annuity products, for example. Those are different locations.
Diversified allocation refers to invested portfolios of stocks, bonds and cash. The allocation and a person’s time horizon, risk tolerance, investment policy and objectives are unique to each individual, and should change depending on whether you are in your accumulation years (working/saving) or your de-cumulation phase (retirement.) This is all very complex and vitally important to visit with a professional.
Taxation will be one of the single largest headwinds we all face. By saving into a qualified retirement plan over the years, meaning not relying solely on the practice to support all the retirement years, we tax diversify. Those funds are saved pre-tax, so grow tax deferred.
There are only three places to build tax-advantaged funds. An example is the Roth IRA, which is funded with after-tax dollars, grows tax-deferred and is tax-free when withdrawn*. There are rules though, and one is an income limit. One can no longer contribute directly to a Roth IRA if they are over the income limits, which change occasionally.
For years there has been a “back door” Roth strategy, but a recent bill is putting that into jeopardy if it makes it through the Senate. It can still be a smart planning strategy to have or start a Roth IRA before retirement, since rolling assets out of a qualified retirement plan into the Roth IRA can be powerful during retirement. And this could only happen if someone saved a good amount into a qualified retirement account, which drives the point of diversifying. Diversification is complicated, personal to each of us and worthy of getting professional help.
2. What is the best way for younger veterinarians to start building wealth?
Work on a financial plan right out of the gate and save early. It should be comprehensive, including building and sticking to a budget, saving emergency reserves, addressing debt and debt strategies and assessing retirement plan options at work, if any.
If there is no employer plan, investing on one’s own is critical. Ensure there are insurance products and they’re the right type/fit/design—meant to protect vets against the “what ifs” of life. Since the financial plan is unique to each person, it should be centered on goals, which is the reason for that plan. The time value of money is as real as gravity. Spend less, save more and stick to the financial plan. I’ve mapped out many financial road maps over the years, from new grads with and without debt—there is a path forward for everyone. There is no one-sized fits all approach, what works for one person may not work for the next.
3. Are you recommending new strategies for veterinarians in 2022 based on the economy and financial markets?
The short answer is not necessarily. Fundamentals are time tested. Economies, taxes, markets, the industry, have always and will always be cyclical. Nothing is static, everything changes and the future is not predictable. My advice is: find a good advisory fit, build a relationship and trust, map out a strategy and then revisit it; it will change. If someone doesn’t offer to plan, seek help elsewhere. If an investor only has their assets managed—i.e. there is no comprehensive plan, this can result in gaps and missed opportunities. A comprehensive plan should be a deep dive into cash flow, retirement, assets/investments, tax planning (in the context of financial planning), risk management (insurances), and estate/legacy planning. All of this is centered on the clients’ goals.
4. What other factors are influencing veterinary financial planning?
Right now, many veterinarians, associates, owners, and teams feel overworked, overwhelmed and tired. They face staffing and doctor shortages, and hopefully this is a cycle. There has been a long bull run with respect to corporates buying practices and doctor incomes going up. Sign-on bonuses are skyrocketing, and it’s very challenging for the independent practice owner to compete with consolidators for staff/doctors.
Owners ask me often what they can do. First, run that practice like the business that it is. PSIvet has many resources to help practice owners become efficient and profitable. Improving that bottom line can mean giving teams (not just doctors) more salary and benefits. Consolidators also struggle with staffing and doctor shortages. Maybe that will mean they become less interested in buying so many practices?
Next, there are ways that the independent practice owner can retain staff in ways corporates cannot. Culture is critical—how about showing your team that you really care. Bringing in a friendly financial advisor to run a financial wellness webinar or to talk about financial tips costs nothing. Ask your advisor to do that for your staff!
5. What personal financial strategies can help combat rising inflation?
Investing properly is a fantastic start, it’s the best hedge against inflation. While we need personal and practice emergency reserves, keeping far too much cash is not a good idea long-term. And spend less! Consider building a comprehensive financial plan with a professional, have them help you invest/diversify and stay focused on what you’re an expert at and what matters most to you!
PSIvet’s Business Services includes one-on-one consultations with Darby Affeldt, a DVM/financial advisor who can customize benefits packages ranging from 401(k) plans to IRAs, among other financial services. Contact Dr. Affeldt at (206) 321-6566, email, or visit the website.
Neither asset allocation nor diversification guarantee against loss. They are methods used to manage risk.
Financial Professionals do not provide tax or legal advice and this should not be considered as such. Please consult a tax or legal professional for advice regarding your specific situation.
Securities and investment advisory services offered through Securian Financial Services, Inc. Member FINRA/SIPC. North Star Resource Group is independently owned and operated. Darby is a registered representative and investment advisor representative of Securian Financial Services, Inc. 2701 University Ave SE, Minneapolis, MN 55414. 3939551/DOFU 12-2021