DMD Staff

Career stress. Parenting stress. That old fear that you’ve missed the entire semester of class and the final is today. According to survey after survey, including last year’s 

, all of these are dwarfed by financial concerns. These are the Big Four:

Will healthcare costs in retirement eat away at my savings?

Will I be able to maintain my standard of living when I retire?

Will my kids’ education costs cripple me?

Let’s look briefly at each one and suggest a reason to sleep easier.

This is the biggest concern, by a mile, for most people in any career. Dentists, though generally considered “highly compensated,” are not immune to this fear. If you’re not currently saving for retirement, this fear may be entirely justified.

 Save and invest, whatever and whenever you can. Maximize any individual retirement account you may have, or if you work as part of a larger practice or healthcare system, you 401(k) or 403(b) plan. There are many investment strategies and vehicles at your disposal, but they’re all moot if you don’t pay your future self as you do all your other current expenses. If you’re behind, don’t think about lost years or opportunities; start now. And if you can’t max out your investment vehicles, that’s OK, too. Pay yourself what you can.

Will healthcare costs in retirement eat most of my savings?

No matter your family health history or current health, you know from your interactions with your own patients that good dental or overall health can be fleeting. And you know that a downward trend in healthcare costs is unlikely in our lifetime.

You can take steps now to prepare for any eventualities you may face in the future. Look into a Health Savings Account and long-term care insurance. No one can prepare for every possible retirement scenario, so pick a couple that are more likely than others to impact your planning. Health savings is a great place to start.

This fear is slightly different than the top one listed above, but it is certainly tied into how much you’re investing, what you plan to do when you retire, and how diversified those investments are. While some costs may go up when you retire, many are likely to go down.  Estimates show that you should plan to replace about 80% of your income for when you retire, but the actual amount will differ depending on your personal situation.

Many retirement providers and financial institutions have retirement savings calculators that let you plug in your personal circumstances and figure out how much income you’ll need to retire in something approaching then same lifestyle you have now. These calculator are no guarantee, but they will help you gauge your current savings strategy and potentially increase it while you’re still earning.

You’re right to be concerned. The costs of secondary education seem determined to keep pace with healthcare. But you don’t have to lose sleep over it.

, which summarizes the advantages of 529 College Savings Plans. 529s are just one of many types of plans designed to help you save for education expenses. As with all savings vehicles, time can work in your favor even if you don’t have a lot to contribute right now. The longer your time window before the money is needed, the longer you’ll be able to earn compound interest enhanced by federal tax-free growth potential. This is because any earnings in 529 plans are automatically reinvested in the plan.

So much of what drives stress is fear of the unknown. Taking action to address those fears is the best way to take away their power. If starting those preparations today is later than you planned, it’s still better than starting tomorrow, next week, or next year.

Articles

Career stress. Parenting stress. That old fear that you've missed the entire semester of class and the final is today. According to survey after survey, including last year's Gallup Economy and Personal Finance poll, all of these are dwarfed by financial concerns. These are the Big Four.

4 Money Matters that May Keep You Up at Night

I hope I snagged you with headline, because it was really my only shot. Let’s face it: Most of us would like to be immortal. Anything that reminds us of our own mortality is more likely to be put off than the biannual cleaning of the gutters. But ignoring death won’t make it go away, and putting off what you need to do before you die won’t make your remaining years—no matter how many you have—any easier. So let’s make this short and sweet: Five simple things to do before you die.

 Every sitcom ever has seemingly had a “reading of the will” scene. But a living trust, which has some advantages over a will—including avoiding probate, federal and state tax advantages, and the ability to determine when a young dependent will be able to have access to the trust—is gaining popularity, and for good reason. We’ll discuss the differences between a living trust and in a will in a future article. For now, be sure you have one or the other in place, and be sure you’ve worked through it with a reputable attorney and not an online kit.

This is the person who will be responsible for following the rules of your will or trust in the event of your death. The person doesn’t have to be an attorney, but it should be someone responsible and of sound mind. Your spouse 

 be your estate administrator, but that may not be the best option. After your death, your spouse may not be so clear-headed.

If you run your own practice, chances are there are many things about the practice, the business, the patients, the technology, or even the office space itself that only you know. If you die suddenly, your family, partners, and staff may be confused, distraught, and unprepared for the affairs that will have to be handled. Make lists of your assets and where they’re held, what you owe and to whom, and charitable organizations you support. These assets can include cars, homes, jewelry, and the like, but they also include savings and retirement accounts and all of your insurance policies. Also make a professional list of anything the team left behind after your death may need to know. Then, don’t hide those lists under your desk blotter. Send one copy to your attorney, one to your estate administrator, one to your life partner or practice partner (or both), and one to your safe deposit box.

4. Update your beneficiaries...and your business succession plan. 

Accounts and policies for which you list a beneficiary pass to that person or entity at your death. A will specifying a beneficiary will 

 (in most cases) override a beneficiary designation listed on an annuity contract, retirement account, or life insurance benefit. Make sure your beneficiaries are updated and listed correctly. And make sure any share of practice ownership you have and any practice assets are going to the person you choose.

5. Talk to a financial advisor or estate attorney. 

This is pretty complicated stuff. If you want to make sure your assets are going where they should, that your family is taken care of, and that the period immediately following your death isn’t unnecessarily complicated on top of being sad, talk through your preparation with an experienced professional.

It won’t help you when you’re dead. But it may make the years leading up to your death a little more peaceful.

Anything that reminds us of our own mortality is more likely to be put off than the biannual cleaning of the gutters. But ignoring death won't make it go away. Here's a list of five financial steps you need to take before time runs out.

Read This Before You Die: A Financial Checklist for Mortals

Being a dentist comes with many challenges. Not only are you likely carrying a heavy patient load, but if you’re running your own practice, you’re also the leader and boss of your staff. (You should add CEO to your title!) Technology can help your practice in many ways, from advanced electronic medical records to virtual educational conferences. Beyond your practice, though, electronic tools can also contribute to your overall financial health. For the busy dentist, technology can be a real time-saver.

Let’s take a look at some ways you can use technology to budget, save, and invest for your future. As a bonus, we’ll look at some ways to market your practice using technology.

The best investors keep a good handle on where their money is, at what rate it earns, and how much they’re paying in commissions and fees. But even the savvy struggle at times to keep up with exactly how their investments are performing. Have you ever tried to actually calculate your investment returns? Do you double-check that what you’re paying in management fees is the right amount? Do you carefully look through all those investment statements, including the footnotes in 6-point font?

There are several online tools that can help—and many of them are available for free. These tools can link to any investment account, including retirement accounts, and track performance, asset allocation, and fees. Tools from Morningstar, Google Finance, and investment providers such as Fidelity and Vanguard make it much easier to not just view your performance, but to assess and potentially change how your assets are allocated.

Are you working within a budget? If not…why not? Budgets aren’t just for those living paycheck to paycheck. Online tools and budget planners, including Mint and many others like it, can be tailored to your individual needs can break down your spending patterns and help you set savings targets.

People used to clip coupons, but today, we click them instead. The Internet is a smorgasbord of sales, coupons, printable or scannable 10% off slips, and other deals on everything from restaurant meals to hotels to sporting events.

 While we’re on the subject of coupons, have you ever considered offering an electronic coupon to better market your practice? Your competitors have. Online coupon companies such as Groupon include discounted services on teeth cleaning, dental exams, and other services that add patients and drive business. As more and more consumers do their business electronically, you may be missing a significant marketing and patient-generating opportunity

The impact of social media sites on personal relationships is endlessly debatable and can be spun any which way you like. But for the purposes of this article, this means liking (fan clubs), friending (Facebook), or following (Twitter) businesses, fan clubs, and products that you frequently enjoy. If, for example, the local cigar shop or national retailer you always frequent has an online club, you may have unique access to special deals or products that the general public doesn’t. Customer loyalty plays both ways, so many companies give their most fervent supporters access to great deals. One quick caveat: try to limit the number of mailing lists and organizations you support, or your e-mail box could soon become so overwhelming that you’ll miss the special offers that are most important to you.

 Is your practice active in social media? Do your patients like and interact with your Facebook page? Do you maintain a Twitter account? You don’t have to have as many followers as Taylor Swift to make an impact on your business. In the paragraph above, you’ll see some ways that local businesses engage potential customers. You can use those same strategies to grow your patient base, increase the frequency of visits, and promote some of the services you provide.

When engaging in social media or using electronic financial tools, always practice good password protection and safety. Don’t log-in to any electronic account from a publicly accessible computer, don’t tack on to an unknown wifi account, and always be on the lookout for scams. Be careful responding to offers sent directly to you, as many savvy scammers will use some pretty intricate tricks to get you to share personal information or buy a product that never arrives. Always deal with sites you know and trust, and if you’re ever unsure, do the old-fashioned thing and use that old rotary phone you keep around for sentimental reasons before clicking.

Technology can help you budget, save, and invest for your future. Here is a look at some of the online tools that can help you achieve your financial goals. 

Your Online Financial Toolbox

Recently, the Department of Labor introduced new rules governing advisors, which basically added significant layers of protection for consumers. We covered the reasoning behind the new regulations 

. Recent news about a record fine assessed to industry-leading insurer MetLife illustrates why the new rules were necessary in the first place. Whether or not you heard about the news, as an investor, you should take note.

MetLife agreed to pay $25 million to settle a probe of abuses tied to variable annuities—a record penalty for annuity-related violations by the self-regulatory Financial Industry Regulatory Authority (FINRA). The sum includes a $20 million fine and $5 million to be paid to customers for “negligent” misrepresentation and omissions, according to FINRA, a self-regulatory body that monitors the financial industry and the behavior of broker-dealers. MetLife agreed to the fine but did not admit to any wrongdoing.

According to FINRA, the probe is tied to abuses from 2009 to 2014, including cases in which MetLife broker-dealers falsely told customers that new annuities offered by the insurer were cheaper than the products they were replacing. MetLife also allegedly failed to disclose to customers that new annuities would reduce or eliminate some benefits. This wasn’t an isolated advisor giving misinformation here or there; FINRA alleged a systematic process of misrepresenting or omitting material facts about the products in nearly three-fourths of applications. Yet, the company’s principals—specially trained and licensed personnel who must review and approve applications&mdash;approved them anyway. There were also fees associated with the products that were not properly disclosed, a big no-no for broker-dealers.

Annuities offer significant potential benefits to retirement savers, but they generally aren’t popular with consumers for two major reasons: 1. Most consumers associate the products with death, a subject they’d prefer to avoid thinking too much about; 2. Consumers often simply don’t fully trust the benefits of annuity products. Annuities come in many varieties, have different phases that can be difficult to explain, and vary in terms of exactly how much money retirement savers will receive and when.

Some would argue that annuities present the greatest opportunity for advisors to act in ways that improve their own bottom lines at the expense of retirement savers—which is what the DOL Fiduciary rule was specifically designed to prevent. But the rule won’t be fully implemented until January 2018, although its most robust protections will be in place by next April. Until then, even though many advisors and the financial companies for whom they work have already enacted more substantial protections than even the new regulations stipulate, it’s up to you to investigate the fees and costs associated with any investment vehicle you’re considering.

Generally speaking, annuities are a really strong arrow in the retirement quiver. Still, it’s worth doing some fact-checking any time you’re in the market for an annuity product—or any other financial vehicle, for that matter. You wouldn’t expect a patient to come to your dental office without doing some homework on your legal history, background, and services offered. The same approach will help you avoid conflicts of interest and any products that may not be best for your portfolio.

A recent settlement against one of the giants of the insurance industry is a good reminder that investors need to be vigilant, particularly when it comes to annuities. 

Record Fine Offers Lesson for Investors: Take an Active Role to Protect Yourself

Graduation season is here. When I was young, we had two: high school, and, perhaps, college. These days, our kids “graduate” from pre-school, kindergarten, elementary school, middle school, and maybe even taekwondo class! It all may be a little silly, but that doesn’t mean we can’t take advantage of it to start thinking about a key aspect of the future that many retirement savers overlook: college savings plans.

Dentists often enter the workforce in the unfortunate circumstance of having to dig out of several years of dental school debt. The costs of a college education have only increased since then. You may have read that the rate of increase for college tuitions is slowing—and that 

. But that doesn’t mean costs are going down; it simply means the rates at which they’re going up have slowed.

So…if you have kids, and they’re interested either in following in your footsteps or making memories at State Party U, you’re going to need a plan. We’re here to help.

 previously, and these plans are popular for good reason. They give you control over your choice of investments and beneficiaries, plus the opportunity for tax-free earnings and withdrawals that are free from federal and some state income taxes. Any earnings in 529 plans are automatically reinvested in the plan—which makes them both easy to use and beneficial over long saving windows. Most 529 plans carry fees, and there is some risk involved, including inflationary risk, which is when your investment grows so slowly that it doesn’t keep up with inflation.

529 plans are popular, but they certainly aren’t the only choice. One of the tenets of the plans that give investors pause is that they are relatively restricted in their use. If your child doesn’t end up wanting or needing the funds, you will pay some penalties—in some cases, pretty stiff penalties&mdash;to free that money up for other uses.

 offer more freedom than 529 plans because they have fewer restrictions on what investments you can make. The trouble with Coverdell plans is that their $2,000 limit per child can make it feel like you’re barely putting a dent in your future cost load.

 set aside for minimal but long-term growth is an interesting alternative. If you have an advisor you work closely with, talk to them about your long-term savings goals and whether a strategy that invests in blue-chip, dividend paying stocks (such as Microsoft or Coca Cola, among hundreds of others), or an exchange traded-fund (ETF) geared for low risk and steady growth. As with a 529 plan, and, really, any investment, there is a risk of losing even the principle of the investment, but these risks can be mitigated somewhat through diversification.

 are also used frequently for college savings purposes. Roths are IRAs that are paid with already taxed money. For many retirement savers who are at the upper limits of their 401(k) maximums, Roths are used as a supplemental retirement saving vehicle. They include a solid feature that allows the funds from a Roth to be withdrawn without penalty prior to age 59½ if the money is used for higher education expenses. Roths have their own contribution limits as well, and there are some important restrictions, but, again, the key benefits are flexibility and the opportunity for slow, steady growth.

, such as tax-free municipal bonds, also make sense for some collage savers. Municipal bonds are more flexible than 529 plans, and they can be held in parents’ names so that your college age children won’t be on the hook for any investment income. Municipal bonds may be less risky than stocks, but they also have less potential for growth.

You may look at all those options and come back to a 529. Just be aware that there all alternatives that may, depending on your overall investing goals, bet a better fit.

529 accounts are a popular and solid way to save money for your children's college. However, the plans do have some drawbacks. Here's a look at several alternative savings vehicles.

4 Ways to Save for College Beyond a 529 Plan

Investing strategy can take many different forms. Passive. Aggressive. Passive-Aggressive (just kidding). Long-term, short-term, buy-and-hold, churn and burn. If you want choice in investing strategies, you have plenty. But many retirement savers—particularly those who have busy professional and personal lives&mdash;should consider the beauty of simplicity. 

, but it’s one we like to continue to come back to, because complexity often begins to creep into investment portfolios quietly and insidiously. Keep complexity at bay with these strategies.

 Sounds boring, right? For some, it might be. But buy and hold is simple. You do some upfront research in identifying a security—be it stock or bond&mdash;and then you…hold on to that security for a period of many years. They don’t make movies (like last year’s terrific 

 about “buy and hold.” But it passes the simplicity test. More than that, it’s generally effective, although a quick Google search will feature many loud voices proclaiming that it is better to try and “time the market.” A vast majority of those voices belong to people who want to help you time the market. Listen with a great deal of skepticism and at your own peril.

 We’ve talked about the different kinds of diversification. Two of the main kinds are by asset class and investment vehicle—stocks versus bonds, a money market fund versus a real estate investment. But there are simpler kinds of diversification, too. And while they may not offer as much protection as a variety of investment vehicles, diversifying by industry (healthcare, real estate, technology) or location (domestic/foreign, Western US versus national, etc.) offers a simpler way to find 

 of diversification. Talk to your advisor to see if these strategies might be a component of your diversification strategy. 

Gee, this one sounds really simple. So why is it so difficult for so many? One reason is that the markets undergo a constant series of ebbs and flows. Many investors, feeling the need to take an active role in their portfolios and perhaps heeding the siren call of investment experts to rebalance their portfolios, often wander from their core investing principles while reacting to a short-term change. Rebalancing periodically is a good idea, but that doesn’t mean adjusting and adapting your current investment strategy to current market conditions. The market is cyclical and always will be; that’s the nature of markets. If your strategy is a good one, stick with it. Refine it as needed, and rebalance with care. But don’t lose your core objectives in the process.

 We’ve all heard the cliché about “too many chefs in the kitchen,” and it is a very real plague in any decision-making process. Even if you work with a trusted advisor, make sure all the final financial strategy decisions are your own. And put a reasonable limit on the number of people providing you with advice. Yes, it can be good to have a second eye or ear helping guide you. But add a few more voices, and soon you’ll have a cacophony. 

For some, investing is almost like a sport something to be actively managed and tracked. But what should you do if you'd prefer a more hands-off approach?

4 Simple Strategies for Investing Success

, we looked at a few steps to prepare for an IRS audit. Here in Part 2, let’s take a look at some do’s and don’ts when it comes to audits. While we’re at it, let’s debunk a few of those myths that surround the IRS that could impact the likelihood of an audit.

Do…Be Candid and Up Front with your Auditor

Don’t…Be Nasty, or Evasive, with the Auditor.

Lavishing your auditor with generous gifts is not just folly, it’s actually illegal. And the auditor can’t and won’t accept them anyway. Instead, give the gift of honesty. Most auditors aren’t interested in playing “gotcha,” and despite the IRS’ reputation, the agency’s goal is simply the proper enforcement of its tax code. Being upfront with your auditor will be best for everyone and will likely go a long way in clearing up and resolving any issues with your return. Keep your answers short and factual, but don’t leave things out, and don’t lie.

Look, an audit can be serious business. If you’re unlucky enough to be chosen for one, go the extra mile and call in a tax professional, an attorney, or if necessary, both. You will have to notify the IRS of your decision to have representation; you can do so with a form 2848, downloadable from the IRS site. Tax professionals are familiar with the process, more likely to anticipate what you’ll need and when, and more familiar with the tax code. They also know what rights you have and don’t have—including disclosure requirements and the rights to appeals.

Do…File an Amended Return If You Spot an Error

Don’t…Think an Amended Return Triggers Audits

You’ve heard this trope, right? You realize there’s a mistake on your already-filed tax return. Everyone knows that filing an amended return wakes the sleeping giant, making an audit all but certain. Right?

This language is directly from the IRS website: “Filing an amended return does not affect the selection process of the original return. However, amended returns also go through a screening process and the amended return may be selected for audit.”

In other words, filing an amended return won’t stop an audit that’s already underway, and that amended return may be selected for an audit, just like any return can. But it doesn’t put a highlight or flag on your initial return, and while it may double your chances of having any audit (because you have now filed twice as many returns), not filing an amended return is a bad alternative. So if you realize a mistake, go the extra mile, file the amended return, and then get back to your daily life.

An IRS audit doesn’t have to be a horror film. You won’t want repeat viewings, but the protagonists typically live all the way to the end.

If you are unlucky enough to be chosen for an audit, you need to handle the ordeal wisely. Follow these tips to make the process go smoothly.

Do's and Don'ts for Your IRS Audit

The number one villain in crime television is the serial killer. If there was ever a 

, the most common villain would be the IRS audit. In reality, the audit is slightly more common than the serial killer, but not by much: for those who aren’t super-rich, you have less than a 1% chance of getting selected for an audit.

Still, what if you didn’t know about all those 

 and were one of the unlucky ones? What do you need to know about an audit? Over two parts, we’ll cover what you need to know and what you may need to do. Even if you never face an audit, this information can help give you some peace of mind.

Make sure you’re really being audited by the actual, official Internal Revenue Service. Scammers these days will make phishing calls or send e-mails pretending to be the IRS and asking for personal information or payment. The IRS does not contact an individual via e-mail for an initial appointment. Rather, they will call you or mail you. If you do get a call, ask for an official title of the person calling and a call-back number. Never give personal information over the phone.

First of all, don’t panic. There’s a chance the reason your return was flagged for an audit was a simple filing mistake, many of which can be easily resolved. Dentists, in particular, can sometimes be flagged if there is a big discrepancy year over year in your business or personal income.

There are three different types of audits:

: The simplest and most common type of audit, usually resulting from a tax return error. If you have one of these, the IRS will specify a deadline for mailing in your updated records. Meet that deadline.

More complicated than a correspondence audit, and often filled with more anxiety, this type requires you to go into an IRS office with all paperwork applicable to your return. You’ll have to schedule a time to meet, usually within a few weeks, but you can request a postponement to get your records together.

 Similar to the office audit, but in this case the IRS comes to your home or dental office, asking to see your records. Now you’re really sweating, perhaps. Don’t. Not yet, anyway.

No matter the type of audit, you’ll need to get our paperwork in order, which should include all tax forms received that year, prior year’s returns (which you may need to reference), copies of bank statements for the year, pay stubs or other proof of income, and any documents you may have that show your level of tax-deductible expenses.

In Part 2, we’ll look at some do’s and don’ts, including a key question: Should you hire an attorney or tax professional?

The word "audit" strikes fear in the hearts of every taxpayer, whether they file their taxes on their own using software or hire the industry's best bookkeepers and accountants. 

Are You Part of the 1% (Facing an Audit)?

In an age when digital is king, you’re not alone if you sometimes wish for the halcyon days of compact discs, hardcover books, and waiting in line at the bank to make a deposit. Ok, no one misses that last one, but you get the idea.

Investments or savings accounts, too, can sometimes seem less than real. Unless you’re holding bearer bonds like the supervillain Hans Gruber in “Die Hard,” it may often feel like your investments are ephemeral. If you long for a brick and mortar investment, you might consider…a brick and mortar investment. Real estate investment trusts (REITS) offer investments in real estate, without much of the hassle. REITS are increasingly popular investments, but because they are an investment vehicle and not a dream, they also come with risks. Let’s take a look.

A REIT is a company that owns and manages income-producing real estate, such as rental properties. They were created by an act of Congress more than 50 years ago to allow modest-means investors to share in rental income from commercial property without needing the kind of starting capital one would need to actually purchase and rent out a commercial property.

REITs are subject to many different kinds of regulations. One that is particularly important to investors is that they must distribute at least 90% of their taxable income to shareholders each year as dividends. While REIT managers can invest in other assets, the majority (75%) must come from real estate, cash, and government securities, and the same percentage of income must come from rents, interest mortgages, or related real estate investments. REITS are available by property type—some might invest in office buildings, while others invest in leased space such as malls or industrial facilities.

The key advantage most investors find attractive is that they can earn relatively high yields, and much of the income generated is generally from stable rents from long-term leases. Even though a REIT is technically a partnership of many investors, tax treatment for them is generally simple. The REIT itself sends investors a tax form that includes a breakdown of the dividend distributions from the fund, and the income from REITs is considered part of “ordinary income, capital gains, and return of capital.” Investors are taxed at the individual level on REIT dividends, rather than the REIT being subject to a corporate tax like with corporate bonds.

REIT trading is generally aggressive, so REIT shares tend to be much more liquid than, say, the direct sale of property. And the vehicles can offer diversification from stock-heavy portfolios. A REIT investment doesn’t offer diversification within the investment, but it does offer it as part of a larger portfolio. Though this isn’t a hard and fast rule, the value of REITs is rarely tied to stock indexes like the NASDAQ or S&P 500, in the same way that real estate overall rarely mirrors those indexes. 

Here’s where the wicket gets a little sticky. Most investors understand the general parameters of investing in corporate stocks and bonds; as the company’s value improves, so does the stock price (generally). Real estate is a horse of a different color. There are many interrelated factors that can affect the profitability of the REIT’s overall portfolio, including the management of the REITs, the mix of the income-generating streams, market forces, and interest rates, among many others. This makes it more difficult to determine whether the value is likely to go up or down.

And remember above when we said that REITs don’t offer diversification within the investment. What we mean by that is that because REITs may specialize in a certain geographic area or kind of interest property, a market slowdown may disproportionately impact the value of a REIT. A natural disaster, while rare, could wreak havoc on a REIT, as could a major legal issue or some other unforeseen issue. Mortgage REITs can be complicated by the complexity of how mortgage banking companies buy and sell mortgages based on their relative repayment risk.

REITs may be a solid investment for many different types of investors. But make sure you understand the risks, which are different from other investment vehicles.

Real Estate Investment Trusts can be a great opportunity for investors who want to keep some money in brick-and-mortar assets. However, they come with the same risks of real estate investment.

Real Estate Investment Trusts: Hassle-Free, But Not Risk-Free

Investing—particularly for your retirement—is generally a long-term endeavor. Get in early, stay late, ride the course of market fluctuations, and chances are pretty good you’ll have a pretty healthy retirement nest egg.

But every portfolio also needs it share of liquidity. For dentists running their own practice or sharing one with partners, there is always the temptation to skip a contingency fund in favor of expanding your practice, buying new equipment, or hiring additional staff. While those are all legitimate uses of “extra” money, there is sound financial reasoning for establishing and maintaining an emergency fund. There are any number of circumstances for which you may need quick cash, including an expected home repair, the sudden illness of a family member, an unexpected interruption in your practice, or any number of life’s little curveballs.

Financial advisors and analysts recommend a “rainy day” fund for such eventualities, in part because it often turns out that funneling a portion of your investment income into a contingency fund has a positive overall impact on longer-term savings. Why? Because if a situation does arise, you can tap your contingency fund instead of siphoning off other investment income. But…where should you put it?  Let’s go over a couple options.

 Your average savings account is not an investment vehicle, but it has many benefits, including the lack of fees, very high liquidity and safety, and the potential to earn at least a little bit of interest.

 share some of the same qualities as a savings account, including safety and high liquidity, but with slightly less flexibility than savings accounts. There are typically limits on the number of checks you can write each month against a money market account, but this shouldn’t be a consideration if you’re using the account as a contingency vehicle.

 may not be the best choice for a rainy day fund, simply because of the fact that your investment will be more or less inaccessible until the CD reaches maturity—typically six months up to a year or longer. CDs are safe and stable, and they’ll typically pay a higher rate of return than a savings or money market account. But if you have to withdraw the money early, as sometimes happens when contingencies come up, you’ll pay a penalty that could wipe out most if not all of that return.

The important thing to remember for your contingency fund is that it doesn’t have to yield explosive growth or even have growth potential. What matters is that the investment is safe and relatively easy to get to on short notice. Having that money set aside frees up your other investments to take advantage of the inverse relationship between risk and reward, as well as the benefits of compound interest that build up over time.

Even high-income individuals need a rainy day fund to ensure their financial progress isn't derailed by life's unexpected expenses. But where should you keep the money?