How to Start Investing While in Medical School

When you think about medical school and money, thoughts typically turn to student loan debt or how much money you’ll make in your profession. The reality is that there are opportunities for investing while in medical school.

Financial experts debate about the better choice — paying down education debt or investing early on. No matter what you believe, there are opportunities to start investing in your long-term future besides medical school. If you’re thinking about jumping into investing, here are some factors to consider, money moves to make before investing and, options available.

Should you invest while in medical school?

For a number of medical students, there isn’t a ton of extra money left over for savings after paying education costs, let alone to try investing. After paying for tuition, housing, food, transportation, and other living expenses, is setting aside money in an account you can’t touch for decades the wisest move? Wouldn’t paying off undergrad and medical school loans or keeping extra money in a savings account be a better option?

Let’s look at both sides of the argument.

In favor of investing while in med school

Despite the obvious economic challenges of a college student, the years spent in med school are critical for investing in some ways.

1. Taking advantage of compound interest

Consider that many people your age have already entered the workforce and are investing in retirement and other accounts. That means they can take advantage of compound interest early on in their career.

As you invest money and earn interest, you also earn interest on your interest. That’s called compound interest. Time is one of the biggest factors in growing investments, so the earlier you can start, the more likely you are to reach your financial goals.

2. Historically high return rates

Another factor to consider is the return you will potentially see on your investment. According to research by Goldman Sachs, U.S. stocks averaged a 10-year return of 9.2% over the past 140 years. Although investing has its risks and no guarantees you’ll reach this level, this data shows historically that investing pays off.

Yes, there are years where returns are much lower, and that’s a reality. That’s something you’ll need to consider as you weigh the idea of investing now versus later. The goal should be to earn returns that outpace the interest you’re paying on your loans.

In favor of paying off student debt

Most med school students must consider whether it makes more sense to pay off their enormous student loan debt bill first.

A recent report by the Association of American Medical Colleges (AAMC) showed that 73% of med school students graduate with student loan debt. The median debt for med school graduates was $200,000 in 2019.

Depending on your loan total, career plans, and other factors, you might want to get your debt knocked out as quickly before pursuing other goals. For many people, the weight of having lingering debt isn’t worth the extra money they could earn by investing that money.

1. Medical residency

As you finish medical school, earn that MD, and enter into residency, you’ll be able to practice medicine. You’ll also start receiving a salary for all of your hard work.

In most cases, you’ll end up doing three years of residency (or more if you choose a specialty). Residency is a great time to think about investing money. You’re getting a paycheck now. Use it wisely, whether you choose to pay off debt or invest some of it in the stock market.

2. Other life and career goals

You’ve worked hard to get to where you are; with this new life stage comes new goals or interests. That could mean eventually buying your own home, starting a family or other pursuits. All of those goals require funding, too, so dividing your funds between paying off debt, investing, and saving for the future is incredibly difficult.

These are just some of the factors to consider as you look at investing versus putting extra money to work in other areas of your life. What's the best option for you in the long run?

Investing for med school students pursuing PSLF

For med school students who plan to pursue Public Service Loan Forgiveness (PSLF), you’re left with an interesting situation. You’re likely graduating with a large debt bill, but it’s also more manageable for you compared to other graduates because of the possible tax-free loan forgiveness.

As you start with PSLF and get placed on an income-based repayment plan, you could end up with fairly low monthly payments. Pursuing loan forgiveness can free up the necessary funds to open an investment account and start building for retirement early on.

Can you invest student loan money?

A topic that comes up frequently when talking about college students and investing is whether you can use federal student loan money for investment purposes. When you fill out and submit the Free Application for Federal Student Aid (FAFSA), you’ll sign an agreement that certifies that you “will use federal and/or state student financial aid only to pay the cost of attending an institution of higher education.”

It’s not against the law to use your federal student loan funds to invest, but it’s not the intended use and puts you in a gray area. Investing probably wasn’t your goal when you signed up for student loans. It was to pay for school.

If you received a loan refund check from your school, there’s no paper trail or reporting that would keep you from investing those funds now. However, you might face possible legal action if someone finds out what you’re doing. Also, the only way it's worth the risk is if you make a return on your investment before you graduate and have to start paying back what you borrowed.

If you need the money to pay for med school, though, your best bet is to use the money the way it was intended.

Smart financial decisions to make before investing

Investing can lead to big returns, but it can also leave you vulnerable in other areas financially. If you plan to invest as a medical student or during residency, there are some financial decisions you should make to protect your financial wellness.

Build a solid emergency fund

Regardless of who you are or your stage of life, having a fully-funded emergency fund protects you and your family when unexpected expenses hit. A decent emergency fund is typically three to six months’ worth of living expenses, although that may not be enough.

The pandemic taught us that traditional savings tips might not be enough to meet our needs during a major tragedy or job loss. Your best bet is to continue socking away money in your emergency fund until you're comfortable with the amount you’ve saved.

A high-yield savings account or money market account is a great place to build an emergency fund. Keeping your emergency fund in a separate account allows for better tracking and removes some of the temptation of using it for other purposes. Plus, high-yield bank accounts earn competitive interest rates beyond what you would see at your local bank.

Don’t use needed school funds

As mentioned before, don’t use your financial aid to invest if you still need it to pay for school. Avoid putting yourself at risk of not finishing school just to start investing.

Have a plan for your student loan debt

When you took out student loans, it was because you knew you needed money to pay for college. You might not have understood at the time what repaying your loan debt would look like.

One of the best things you can do, financially, is developing a game plan for your student loans. Whether it's signing up for the SAVE plan to take advantage of generous borrower benefits or pursuing Public Service Loan Forgiveness (PSLF), financial planning can help you decide how you’ll pay off your loans.

Depending on your situation, you can also wait until you’ve established credit and refinance your loans to a lower interest rate. Knowing how you plan to tackle your debt goes a long way in determining what you’ll do in other areas of your life, like investing.

How to get started investing as a med school student

Getting into investing doesn’t mean you need to immediately jump into the deep end, become a day trader, or spend your life savings on Bitcoin. Your best option is to research what options are available and start slow. Here are some ways that you can invest your money while in medical school.

A free or low-cost broker

These days there are plenty of inexpensive ways to open an investment account. No longer do you need the help of an investment advisor, although it’s an option.

Brokerage firms like Vanguard and Fidelity offer several investment account options with low fees. Investment account options may include:

• 401(k)
• IRAs
• Roth IRAs
• Taxable accounts

Tons of free or low-cost brokerage firms or robo advisors exist that not only help you get started, but also educate you on investing strategies and more. Robo advisors like Betterment offer ready-made investment portfolio options that match your investment needs.

You can also choose stocks, bonds, index funds, mutual funds, and other investment options for a DIY approach. A small investment of $100 a month into your account can get you started.

Open a retirement account during residency

Once you start your residency, you’ll likely have access to more investment options. Most residency programs offer access to retirement plans like a 403(b) plan or Roth 403(b) plan. Do your homework to see if either of those options is right for you or if other options are available.

Check to see if your employer offers to match contributions. If so, max-out your contributions and take advantage of free money from your employer.

Real estate investing

This might seem a bit far-fetched if you’re still in school, but real estate is another area of investing that can lead to great ROI. If you have the ability, you can invest in a property, like a duplex, and rent one unit out to get earnings on the side. You can use the rent to cover mortgage payments until it’s paid off.

Keep in mind that you’ll then become a landlord and have to deal with finding tenants, collecting rent, and other duties. You can also hire a property manager to help with some of the work. Real estate is a whole different ball game than opening an investment account.

Only pursue this option if you have the financial resources and the time. The last thing you want is for your investments to become more important than your medical education.

Join an investing course

If you want to learn how to invest so that you build wealth despite your student loan debt, check out Six-Figure Debt to Six-Figure Net Worth. The online investing course teaches you how to reach a six-figure net worth in five to 10 years and climb toward financial freedom, despite medical school debt. It’s packed with lessons and bonus content, and is backed by a seven-day, money-back guarantee.