Wealth accumulation for dentists: How to build financial independence through your practice

When it comes to building wealth as a dentist, there is no shortage of financial advisors or investment theories. But for most dentists, the path is straightforward: your dental practice is your greatest wealth-building tool.

For the majority of dentists, the largest portion of net worth will come from practice income. By focusing on proven strategies inside your practice and avoiding common pitfalls, you can reach financial independence as a dentist at a reasonable age and enjoy long-term security.

The foundation of wealth accumulation for dentists

As a dentist you have entered a career that allows you to easily reach the upper middle class (or higher). While there are certainly exceptions, I have found the following observations to be generally true and important for every dentist to understand.

• Dentists often start without family wealth. The majority of dentists will be the highest income earner and the highest educated person in the history of their families, not including siblings. This basically means that most dentists do not come from situations where family wealth can cover all student loan debt, pay for the opening or purchase of a practice and even provide trust funds. The majority of dentists will depend on their own income and debt retirement in order to accumulate savings and a significant net worth.
• Income potential is strong, but not unlimited. Although there are extremely high-end and low-end practices, most dentists will make a good living and do very well. What most will not be able to do with the income from one or two dental practices is buy a fleet of million-dollar sports cars, own houses on the French Riviera, and fly on their own private jet.
• Dentists are rarely trained in business or investing. While you may excel clinically, investing in industries you don’t understand—restaurants, real estate, startups—can lead to losses or even bankruptcy. Focus first on maximizing dental practice profitability before diversifying.
• Your practice drives wealth until investments take over. The sooner your practice reaches peak performance, the sooner you can generate passive income from investments. Practices that grow production even modestly year after year compound into high-performance, wealth-producing practices.

Principles of wealth accumulation for dentists

Work with a qualified financial advisor.

There are many financial advisors with many different philosophies about wealth accumulation, so selection is important. Some work on commissions and others work on fees. I suggest that dentists use fee-based financial planners. This creates a level of objectivity, and the investment advisor does better when the portfolio does better. Additionally, it is important to choose an expert who understands your risk profile, your net worth and your unique pathway toward financial independence. They should perform a comprehensive and customized financial plan.

One critically important point. Even the best financial advisors have limitations because they can only create a financial plan based on what they know today. Interest rates, taxes, tariffs, etc. will all change, affecting your financial plan. This is why it needs to be updated on a regular basis.

Recognize your practice as your main wealth driver.

Until your income from your savings exceeds your income from the practice, the practice is the main driver. Most dentists will make their money from their practices and not from other investments until you accumulate enough that your investment returns are equal to or more than the practice income. Your financial advisor can also tell you at what point that is likely to happen. Always discuss outside investments with your financial investment advisor and an experienced business attorney.

Diversify.

We all hear about the dentist who made a fortune (supposedly) by investing in some amazing opportunity. However, I have seen numerous dentists invest in individual stocks or private investments and lose significant money. Dentists are smart but not necessarily experienced in investing. This is why most dentists should build a diversified portfolio with their financial investment advisor. You may not get the biggest returns or be able to brag about your results at parties, but you will have solid steady growth over time that will allow you to reach financial independence.

Everybody wants to have the big wins when it comes to investing. We all hear stories about people getting massive returns, but we don’t hear as much about the far greater number of people who experience investment losses. Select your desired annual return such as 5%, 7% or 9%. Work with your financial investment advisor but be careful not to “swing for the fences.” A steady return over time is typically more beneficial to a dentist than up-and-down investment returns.

Manage debt strategically.

One-size-fits-all philosophies are often dangerous and incorrect. It might make sense to pay off all your debt as early as possible, and it might not. Some debt is inexpensive and makes more sense to be paid off gradually. For example, if you have a loan with an interest rate that is now below the average return on investment of the stock or bond market you may want to pay that loan off as slowly as possible while you are making money on the investment side. Debt comes in many different forms and interest rates. So, you want to analyze debt with as much focus as you analyze investment strategy as part of your long-term planning and goals toward reaching financial independence.

Decide: ownership vs. employment

Should you be an employee or an owner? You will find strong opinions on both sides of that coin. Decide how you want to practice. If you want total control, you don’t want to be an employee. If you want less responsibility, you might. The biggest difference between a dentist employee and an owner is that dentists who own a practice have an asset. By building a practice over time you experience excellent income and savings opportunity. You’re also creating an asset that has an excellent sale value. Although it is my recommendation not to require the sale of the practice to reach financial independence and for that to be bonus income, when the practice is sold, it is still a valuable asset. On the flip side, if you own a practice you have to manage and run it and that takes additional time and effort. This is a personal decision.

Eliminate practice “leaks.”

Although this may seem hard to believe I can make the case that many practices will lose $15–$20 million in a forty-year career. Most of it is by omission not co-mission. It is the things that you don’t measure and don’t watch and don’t do that add up over time. For example, no-shows and last-minute cancellations can cost a practice anywhere from $3–$6 million over 40 years. Dental practices have enormous potential for growth that are often not understood by dentists who simply haven’t been trained in business financial analysis and business strategy and don’t recognize when money is leaking away from their practice.

Three steps to financial independence for dentists

1. Increase practice income every year. You can accomplish this by implementing excellent step-by-step systems, training the team in the systems, mandating that the team follow the systems and updating them regularly, replacing them every 3 to 5 years.
2. Save a targeted amount annually. Your financial advisor should be able to give you the exact amount of savings you need each year to reach your financial goals based on what we know today. As the economy and financial world continue to change, you may need to change the amount of savings, but that is normal and expected.
3. Avoid negative life events (NLEs). An NLE is anything that sets you back financially. Some are controllable, such as bad investments, investing in someone else’s business that goes bankrupt or lending large sums of money to people that can’t pay it back. Others cannot be avoided such as illness and in some cases divorce. Avoiding NLEs will have an excellent impact on your ability to reach financial independence at the right age.

Summary: Building long-term wealth as a dentist

Dentists invest heavily in their education and careers, and deserve strong financial returns. By focusing on your dental practice as the foundation of wealth accumulation, working with trusted advisors, and applying proven business systems, you can achieve financial independence, steady investment growth, and a rewarding lifestyle.

The formula is simple but powerful:

• Build and optimize your practice
• Save consistently
• Diversify wisely
• Avoid unnecessary risks

With discipline and planning, most dentists can create a low-risk, high-reward financial path that provides security for themselves and their families.

Editor's note: This article originally appeared in The Bottom Line with Dental Economics. Subscribe here.