Despite years of rigorous training and strong analytical skills, many doctors and dentists make costly decisions when it comes to investing. The habits that make healthcare professionals excellent clinicians do not always carry over to investment choices. Instead of keeping more of their money in low-cost investments, many clinicians pay high charges for funds that underperform, which can cost a great deal over a working life.
This article explains why this happens, how it affects your long-term finances, and how a specialist accountant can help you understand the costs and tax position of your investments.
The investment misconception among healthcare professionals
In clinical practice, doctors use evidence-based approaches. Faced with a common headache, they know a generic ibuprofen works as well as an expensive branded version, so they recommend the cheaper option.
Yet that cost-conscious logic often disappears when the same professionals make their own investment decisions. Rather than choosing low-cost, transparent products, many end up in actively managed funds with high ongoing charges and entry fees, because the products are packaged attractively or recommended to them.
This gap between evidence-based clinical decisions and less scrutinised investment decisions is a key reason doctors and dentists can lose significant sums over time.
Active and passive investments
There are two broad types of fund:
- Actively managed funds: a fund manager selects shares or other assets to try to beat the market. The fund charge, plus platform and adviser fees, can add up to 1.5% to 2% a year or more.
- Passive index funds: these track a market index, such as the FTSE 100 or S&P 500, and typically charge around 0.2% a year or less.
It might seem that active management should produce better returns. Over the long term, the evidence shows that most actively managed funds fail to beat their index once charges are taken into account.
Why charges matter so much
A charge of 1% or 2% a year can look small. But charges are taken every year, and they compound, so their effect on your wealth grows over time.
As an illustration, suppose £10,000 is invested for 40 years and the underlying investments grow by 7% a year before charges:
- With total charges of 0.2% a year, it would grow to about £139,000.
- With total charges of 1.8% a year, it would grow to about £76,000.
That is a difference of around £63,000 on a single £10,000 investment, caused entirely by charges. On a pension pot or portfolio of several hundred thousand pounds, the same difference runs into millions. This is an illustration only: real returns vary from year to year and are not guaranteed.
Why healthcare professionals fall into this trap
Doctors and dentists make excellent decisions in clinical practice, but most have had little formal financial education. Several factors contribute:
1. Lack of financial education
Medical and dental training focuses on clinical expertise, not on managing personal wealth or investment strategy.
2. Charges that are not reviewed
Many clinicians stay in higher-cost funds for years because nobody reviews the total charges they are paying, or because the advice they received was not independent.
3. Endorsements that create false confidence
Investment products are sometimes promoted as being designed for doctors or dentists, which can make them seem like the safe choice even when they offer poor value.
How a specialist accountant can help
A specialist accountant cannot replace a regulated financial adviser, but can help you see the full picture of your finances, including the tax position and true cost of your investments.
- Understanding the costs: helping you identify the total charges you are paying and what they cost over time.
- Tax efficiency: explaining how pensions, ISAs, a limited company and other structures affect the tax on your savings and investment income.
- Joining things up: making sure your investments fit with your tax planning, NHS pension position and long-term goals.
For specific investment recommendations, you should always use a financial adviser authorised by the Financial Conduct Authority.
Practical steps to avoid costly investment mistakes
- Ask for a full breakdown of charges: fund charges, platform fees, adviser fees and any entry or exit costs.
- Consider low-cost options: ask your adviser whether lower-cost index funds would meet your needs.
- Align investments with your goals: your age, retirement plans, income and attitude to risk should shape your choices.
- Get the tax right: make full use of pension and ISA allowances, and speak to a specialist accountant about the tax position.
Final thought: wealth does not grow by accident
Doctors and dentists dedicate their careers to care, precision and excellence. When it comes to investing, focusing on low costs, tax efficiency and long-term planning helps you keep more of what you earn.
If you would like help understanding the tax position of your savings and investments, book a free consultation with our accountants for doctors.
Frequently asked questions
Why do doctors and dentists lose money on investments?
Mostly because of high charges, actively managed funds that underperform once charges are deducted, and a lack of independent financial education. Over time, those costs compound and significantly reduce long-term returns.
Are actively managed funds better for healthcare professionals?
Not usually. Most actively managed funds fail to beat their index over the long term once charges are taken into account.
Why are doctors and dentists targeted by high-fee investment products?
They are often high earners with little time to manage their own finances. That makes them attractive to providers of complex, high-fee products marketed as "exclusive" or designed for their profession.
How can a specialist accountant help with investments?
A specialist accountant can help you understand the total cost and tax position of your investments, and make sure they fit with your wider tax planning and NHS pension. Specific investment recommendations should come from an FCA-authorised financial adviser.
How much can investment fees cost over a lifetime?
A difference of 1% to 2% a year in charges can significantly reduce the final value of long-term investments because of compounding. On large pension pots and portfolios, the difference can run into hundreds of thousands of pounds or more.
What should healthcare professionals do before investing?
Understand the total charges, be clear about your long-term goals, check the tax implications, and take advice from an FCA-authorised financial adviser alongside your accountant.