Medical Professionals

5 Common Physician Financial Biases

How your biases can impact your finances

A doctor using a tablet

You have spent the better part of your life in pursuit of knowledge. You’ve achieved success in one of the most demanding professional disciplines imaginable. To say that you’re generally one of the smartest people in the room isn’t egotistical, it’s simply factual. Surely with a little studying you could easily master the challenges of financial planning and investing, right?

Welcome to Optimism/Overconfidence Bias—perhaps the most common behavioral bias that plagues physicians. We’re all susceptible. But ask a room full of physicians to rate their medical skills as either below average, average, or above average. It’s a pretty safe bet that far more than fifty percent would categorize themselves as above average. 

Overcoming cognitive biases

Despite extended periods of market turbulence and volatility, the S&P 500 Index® managed an 8.2 percent average annual return between 1996 and 2016. During that same period, however, individual investors realized a mere 2.1 percent average annual return on their portfolio.1

Why such a tremendous discrepancy? It’s not so much about fees and expenses as it is about attitudes and behaviors.

From the groundbreaking work of pioneers Daniel Kahneman and Richard Thaler in the late 1970s and 1980s, to new practical approaches for improving retirement outcomes being designed by next generation leaders like Shlomo Benartzi, we’ve come to understand a great deal about the various cognitive biases that serve as impediments to success in investing and wealth management.

As a successful physician, you’ve earned the right to be exceedingly confident in your abilities. Your tendency to be highly optimistic—believing in your ability to shift the balance of probability to make “good things” rather than “bad things” happen—is a bias that usually serves you well. 

In managing your wealth, however, it often leads to sub-optimal results. Overconfidence can create a sense of invulnerability, where you see yourself solely as a curer of the ill, never seriously considering that you might potentially join their ranks. In addition, your individual identity and your profession often become so intertwined that the idea of retiring can seem like a totally foreign concept. These are tendencies that often lead to financial planning procrastination and delays. Can’t I focus on paying down debt right now and deal with maximizing my retirement savings somewhere down the road? Why should I bother planning for long-term care expenses?

The other major bias that physicians seem particularly susceptible to is Herding Bias. Humans are social animals. There’s a definite safety and comfort that comes with following the pack—even when the herd may be acting counter to its best interest. Take the current industry-wide race to the bottom on fees as well as the huge flight from actively managed funds and separately managed accounts into low-cost ETFs. As voracious consumers of financial information—from websites such as The White Coat Investor and publications like Forbes and Barron’s—doctors have been near the vanguard of these trends. But are they sound practices?

At first blush it may appear that paying minimal or even no fees (by extracting the middle man) will lead to better results. In reality, though, you often get what you pay for. Having a trusted advisor to guide you—especially when markets head south—can make all the difference. The same holds true with active versus passive investing. “There are managers out there who are consistently beating their benchmarks and adding considerable value,” explains SunTrust Medical Specialty Group advisor Michael Rutler. “This is because when and if the market, a particular sector or a certain stock shows signs of weakness, active managers have the freedom to reduce or eliminate positions. ETFs, on the other hand, can’t mitigate risk by trimming back; they have to mirror their index.”

It’s the rare ability and willingness to stand alone and move counter to the prevailing wisdom which sets investors like Warren Buffett apart from the crowd.

Other biases to keep in check

In addition to the two aforementioned biases, physicians should pay particular attention to a few others that can quickly derail long-term financial plans if not avoided:

  • Recency bias – We’re all familiar with the ubiquitous “past performance is not indicative of future returns” disclosure. But do we really heed it? Behavioral studies seem to indicate that people expect whatever’s occurred recently to continue happening in the future. It leads us to chase the latest investment trends rather than trusting in time-tested asset allocation and diversification strategies. Because of your high income, physicians are often solicited to participate in funding start-ups, questionable commercial real estate investments and highly illiquid hedge funds/private equity. Make sure you have a trusted advisor help you vet these riskier opportunities (no matter how well they’re currently performing) and try to keep them to no more than 5-10% of your total portfolio.
  • Loss aversion – In almost every aspect of our lives, we tend to experience the pain associated with loss far more intensely than the pleasure associated with gain. It’s the reason why, despite the potential tax disadvantages, investors will often choose to sell their winners while holding on to their losers. “I can’t tell you how many hours I’ve spent on the phone with wealthy physician clients eager to chase the latest investment trend,” recalls Matt Bracewell, another advisor with SunTrust’s Medical Specialty Group. “Their focus is on the high potential reward, so it’s my job to remind them of the attendant high potential risk. Most heed our guidance. Those who don’t, however, often compound the mistake by refusing to sell when the investment begins declining – choosing to hold on in hopes that it will someday come back.”
  • Illusion of control bias – Every day when you drive to and from your practice, you feel a sense of control behind the wheel of your car. But are you really in control? Every single time you pass through a green traffic light, aren’t you trusting that multiple other drivers will adhere to traffic laws and not run their red light? In your profession, you have an ability to exert an incredible degree of control over life and death—the health and wellbeing of your patients. Your mind has been trained to make rational, disciplined and evidence-based decisions. This can be a major hinderance when faced with the irrational, variable and unpredictable nature of financial markets.

Here we are, 10 years into a bull market. Everybody’s relatively pleased with their portfolio performance and feeling a bit complacent. How quickly we forget the financial pain and fear of 2007 and 2008. “Biases aren’t inherently bad,” explains Joe Sicchitano, Senior Vice President and Head of Financial Planning for SunTrust Private Wealth Management. “But it’s vital to understand those biases and how they impact your decision-making, so you don’t allow a single emotion-based moment to undo years of thoughtful planning.”

Having a trusted advisor to guide you through the good years is beneficial. Having one to prepare you for and guide you through the down years is essential. Whether it’s a propensity for overleveraging yourself, or some other negative behavioral tendency, an advisor can help you avoid distractions and stay focused on your most important long-term goals. 

Learn more about how to make smarter investment decisions

Find out more about what the SunTrust Medical Specialty Group can do for you. Call 800.321.1997 or visit

1 BlackRock, “Investing and Emotions,” 2016

Michael Rutler, Matt Bracewell and Joe Sicchitano are Registered Representatives, SunTrust Investment Services, Inc. Investment Adviser Representatives, SunTrust Advisory Services, Inc. 

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