Taking stock of stocks
I'm interested in investing. What stocks should I buy?
Q. I'm interested in investing. What stocks should I buy?
"We veterinarians work extremely hard for our money and we're very intelligent folks," says Dr. Andy Anderson, DACVS, MBA, founder of Veterinary Wealth Management in San Antonio, Texas. "Unfortunately, that doesn't make us qualified to pick stocks." Besides the fact that investing in individual stocks is extremely risky, the time required to research and select a company makes this approach incompatible with practicing veterinary medicine, he says.
Dr. Andy Anderson
Portfolio theory holds that investors should own at least 25 to 40 stocks to achieve reasonable levels of diversification, an important risk management tool, Dr. Anderson says. Taking into account transaction costs, the necessity of allocating funds appropriately, and other concerns, it takes about $200,000 to create a solid diversified portfolio of individual stocks. "This is an expensive starting point," Dr. Anderson says. "Fortunately, there are great alternatives that investors like us can use to achieve diversification with low transaction costs."
He suggests mutual funds, exchange-traded funds, and index funds as a few examples of alternatives. When you focus on these products, the key is to develop the correct long-term strategy and appropriate asset allocation to achieve your financial goals.
"Veterinarians need solid long-term investment strategies that protect and increase the purchasing power of their savings—after taxes—at an appropriate level of capital risk," Dr. Anderson says. "In this game, steady performance over the long term beats the combination of a few big winners and losers every time."
