Diversification and Portfolio Management

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What is Financial Asset Allocation?

By Jeffrey S. Coons; Ph.D, CFA

By Christopher J. Cummings; CFA, CFP™ 

Once the risk management goals and objectives for a physician’s financial portfolio have been identified and prioritized, the next step is to build a mix of investments that will best balance those conflicting goals.   

Asset allocation is defined as the portfolio’s mix between different types of investments, such as stocks, bonds, and cash.  The goal of any asset allocation should be to provide a level of diversification for the portfolio, while also balancing the goals of growth and preservation of capital required to meet the medical professional’s objectives.

Establishing the appropriate asset allocation for a physician investor’s portfolio is widely considered the most important factor in determining whether or not he/she meets his/her investment objectives.  In fact, academic studies have determined that more than 90 percent of a portfolio’s return can be attributed to the asset allocation decision.  

So, how do physician investors and their advisors typically make asset allocation decisions? 

One method is best characterized as a passive approach, in which a set mix of stocks, bonds and cash is maintained based on their historical risk/return tradeoff.  The alternative is an active approach, in which the mix among various asset classes is established based upon the current and expected future market and economic environment. 

In addition to pursuing a passive investment strategy, such as indexing, medical professionals supporting the notion that market prices accurately reflect all available information generally are not concerned with the timing of their investment decision.  

The most frequently used strategy to avoid a market timing decision when establishing an initial allocation to stocks is referred to as dollar cost averaging. Dollar cost averaging entails investing the same amount of money at regular intervals.

For example, an investor who wishes to dollar cost average may decide to invest 1/24 of the allocation on the first of each month for two years rather than investing the full amount immediately or trying to time buys when stocks are trading at a low point.

Value-cost averaging does the same thing with the same number of shares, rather than dollar amount, for its regular intervals.

Now, what is your personal favorite strategy?

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 Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

Risk Retention Groups

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RRGs and Medical Malpractice Insurance Companies

[By Dr. David Edward Marcinko; FACFAS, MBA, CMP™]



Risk Retention Groups are owner-controlled insurance companies authorized by the Federal Risk Retention Act of 1986.  An RRG provides liability Insurance to members who engage in similar or related business or activities for all or any portion of the exposures of group members, excluding first party coverage’s, such as property, workers’ compensation and personal lines.  Authorization under the federal statute allows a group to be chartered in one state, but able to engage in the business of insurance in all states, subject to certain specific and limited restrictions.  The Federal Act preempts state law in many significant ways.

RRG Advantages:

Medical RRGs

  • Avoidance of multiple state filing and licensing requirements;
  • Member control over risk and litigation management issues;
  • Establishment of stable market for coverage and rates;
  • Elimination of market residuals;
  • Exemption from countersignature laws for agents and brokers;
  • No expense for fronting fees;
  • Unbundling of services.

Of 130 new medical malpractice liability insurance companies that entered the market between 2002 and 2006, 65 percent were risk-retention groups, according to a study conducted for the National Risk Retention Association by the actuarial consulting company Milliman Inc.

Statistics from the Risk Retention Reporter, a journal that tracks the industry, showed that through September, 43 percent of the 23 risk-retention groups formed this year across various sectors are doctor-owned, while in 2001, no new physician risk-retention groups joined the market.

RRG Disadvantages

Some doctors and industry experts warn about drawbacks of risk-retention groups and question whether the physician-run companies – most of them relatively young – can survive future claims payouts and tough market cycles, while doctors do not have access to state guaranty funds to back up their coverage if a risk-retention group struggles financially or goes out of business. The Risk Retention Reporter noted that, anecdotally, physician self-insurance companies have failed at no greater rate than traditional carriers in recent years. 


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  • Dr. David Edward Marcinko; MBA CMP [Editor and Chief]
  • Hope Rachel Hetico; RN MHA CPHQ CMP[Managing Editor]
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