Wealth Accumulation Strategies for Dentists: Part II

By Roger P. Levin, DDS

In part I of this article series (click here to read if you haven’t yet), I shared some of the key challenges, opportunities, and trends dentists face when accumulating long-term wealth. Below, we’ll review the actions you can take today to forge your path toward future financial security.

How to accumulate wealth as a dentist

As I point out in seminars that I give on wealth accumulation, it all begins with practice production. Most dentists have one primary source of income: their practice. As I like to say, the practice is your best ATM machine. This means most dentists do not have other major sources of income (e.g., an inheritance, trust funds, or other businesses) to fund their livelihood. In fact, other non-dental businesses often cause dentists to lose money because they are typically passive investors in an enterprise they don’t understand. Every dentist’s top focus should be their practice, and by increasing practice production annually, income security and wealth accumulation will stay positive.

Production is by far the most important factor in both understanding a dental practice and understanding a dentist’s career savings potential. Production allows the practice to perform at elevated levels, creating profit and income for the doctor, which they can properly invest in either their lifestyle or savings.

When analyzing practice production, the five important statistics all dentists should track are:

1. Total practice production
2. Production per patient
3. Production per service
4. Production per provider
5. Production per new patient

If these five statistics are in line with a dentist’s pre-established practice goals, then their practice’s financials, as well as the dentist’s income and savings, will be on the right track.

Do dentists need to take big risks to accumulate wealth?

Several wealth accumulation philosophies have circulated over the years, but one unchangeable rule among them is the correlation between risk and return. The bigger the risk you take, the bigger your potential return — but for dentists, this philosophy is problematic. Why?

While dentists have excellent incomes compared to the average worker, they often can’t afford significant losses. Many dentists have had setbacks financially and have taken years to recover. From an investment standpoint, dentists need to carefully consider their risk for financial setbacks and mitigate them accordingly.

This is also why dentists should begin saving as early as possible, especially because the practice will be their greatest source of income and savings. Living well beyond your means at an early age may mean playing catch-up for the rest of your career and retiring later than desirable. By designing a plan to save a specific amount of money annually and investing that money (both as an individual and in tax-beneficial retirement programs), you can build a nest egg that benefits from more compound interest. But once again, risk equals return.

Few people take on significant risk and hit it big; and most people who attempt that route do not hit it big and endure financial hardship. I strongly recommend that dentists hire experienced financial advisors from large institutions to guide them in their financial planning and investment strategies. While there’s nothing wrong with conservatively investing your own money, financial advisors can provide excellent guidance for the growth of a portfolio while also protecting the downside if and when the economy goes through a negative cycle.

Conservative investing for dentists makes sense; those who make steady contributions to their savings and retirement funds will reach financial independence at a reasonable age and still have a comfortable lifestyle. While there are many types of high- and low-risk investment opportunities on the market, dentists must seriously consider how well they would withstand a negative return.

As one top financial expert recently said in an interview, “A 5% return for 20 years isn’t so bad.” Simply do the math with your financial advisor and determine what your target return on investment is over time, plus the level and type of investment that will generate your ideal return. Several factors can impact your investment situation, from stock market fluctuations to interest paid on safe investments like government-guaranteed treasury bonds. The right investment advisor can help you create a conservative, diversified portfolio that will generate steady growth and returns that allow you to accumulate wealth gradually. This approach will help dentists reach financial independence at a reasonable age.

Your practice is still your best source of income

If you want to accelerate your wealth accumulation prospects, the single best and safest option is to increase practice production and profitability. You can still maintain a conservative approach to investing to create a positive upside (and protect your downside). Strategies for increasing production can include:

• Regularly contacting and scheduling any patient without their next appointment.
• Increasing hygiene services as much as 20% by making sure all patients are up to date on x-rays and fluoride.
• Recognizing the value of sealants.
• Increasing the amount of adult fluoride.
• Recommending aesthetic services (e.g., whitening and veneers) that patients may find interesting.
• Identifying all potential treatment for doctors.

Your practice can also focus on increasing the number of new patients and adding new services; enhancing scheduling to allow for growth; improving case presentation; and reducing no-shows and last-minute cancellations.

The bottom line

As the average retirement age for dentists increases, it is more important than ever to pay attention to wealth creation and accumulation opportunities. These strategies can help create more income for dentists, allowing them to accumulate wealth faster.

ROGER P. LEVIN, DDS

Roger P. Levin, DDS is the CEO and Founder of Levin Group, a leading practice management consulting firm that has worked with over 30,000 practices to increase production. A recognized expert on dental practice management and marketing, he has written 67 books and over 4,000 articles and regularly presents seminars in the U.S. and around the world.

To contact Dr. Levin or join the 40,000 dental professionals who receive his Practice Production Tip of the Day, visit www.levingroup.com or email rlevin@levingroup.com.