The short answer is yes. Medical students can start investing. But whether you should start investing while in medical school is a more nuanced question that depends on your individual financial situation.
When most people think about medical school and money, the focus is typically on student debt—how much you’ll owe and how long it will take to pay off. The idea of investing while carrying significant debt might seem counterintuitive or even irresponsible. However, there are compelling reasons to consider starting early, even in small amounts, along with important caveats to keep in mind.
This article explores the case for and against investing as a medical student, outlines practical considerations, and provides guidance on how to approach investing if you decide it makes sense for your situation.
The Case for Investing Early
The primary argument for investing during medical school centers on a fundamental financial principle: compound interest.
Compound interest occurs when the interest you earn on your original investment begins to earn additional interest over time, creating a snowball effect that steadily builds both value and momentum. The key factor that determines how much your investments grow is not just how much you invest, but how long that money has to compound [1]/
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 [1].
Consider this scenario: Three residents (A, B, and C) each invest $5,000 per year at different starting points in their careers. Resident A starts investing during medical school and continues through residency; Resident B waits until residency to start; and Resident C waits until becoming an attending. Despite investing the same annual amount, Resident A ends up with significantly more wealth at retirement simply because their money had more time to grow [1].
By investing early and wisely, you can take advantage of compound interest and begin growing your nest egg, with the goal being to start saving for retirement early to maximize compound interest accrued throughout your life [2].
For medical students specifically, there is an additional consideration. Unlike most of our peers who entered the workforce after college, we face a prolonged period of training before reaching our full earning potential. Despite the obvious economic challenges of a college student, the years spent in med school are critical for investing in some ways, considering that many people your age have already entered the workforce.
Starting early—even with small amounts—allows us to partially offset the years we spend in training while our college friends are building retirement accounts and investment portfolios.
The Case Against Investing in Medical School
The counterargument is equally valid and centers on the reality of student debt and opportunity cost.
Most medical students are living entirely on borrowed money. Medical students will pay back approximately $2 for every $1 borrowed due to interest accumulation, meaning each dollar spent from loan money essentially costs double the initial amount borrowed [3].
This creates an important financial reality: if you’re taking out loans to cover your living expenses and then using part of that money to invest, you’re essentially investing borrowed money. You’re paying interest on student loans (often 6-7%) while hoping your investments will return more than that rate.
From a purely mathematical standpoint, paying down high-interest debt—or simply borrowing less in the first place—can be equivalent to earning a guaranteed return equal to that interest rate. Paying off most med school loans is basically a 6-7% return with zero risk and no capital gains tax.
Additionally, there is the practical consideration of cash flow and financial stability. It makes more sense to keep money in a high-yield savings account for living expenses that are guaranteed to come up in medical school and decrease the amount of loans you need to take out, rather than investing and hoping for market gains.
Medical school brings unpredictable expenses—board exam fees, residency interview costs, emergency car repairs, medical issues. Having cash available for these expenses prevents you from taking on additional high-interest credit card debt or personal loans.
A Balanced Approach: When Investing Might Make Sense
Given these competing considerations, here is a framework for thinking about whether investing makes sense in your situation.
Consider investing if:
- You have personal savings or income outside of student loans. If you have money from prior work, family contributions, or part-time income that isn’t borrowed, investing some of that money allows you to benefit from compound growth without paying interest on borrowed funds.
- You have an emergency fund established. Before investing, ensure you have 3-6 months of expenses saved in an accessible account. This protects you from unexpected costs and prevents the need to liquidate investments at an inopportune time.
- Your student loan interest rates are relatively low. If your loans have interest rates below 5%, the historical average return of the stock market (approximately 7-10% annually over long periods) may justify investing instead of paying down debt more aggressively.
- You want to learn about investing with small amounts. Getting into investing doesn’t mean you need to immediately jump into the deep end—your best option is to research what options are available and start slow. Investing small amounts ($50-100 per month) can provide valuable education and experience without significant financial risk.
Avoid investing if:
- You’re living entirely on student loans. If every dollar you have comes from borrowing, focus on minimizing how much you need to borrow rather than investing borrowed money.
- You don’t have an emergency fund. Investing money you might need in the next few years exposes you to the risk of having to sell investments during a market downturn, potentially locking in losses.
- You have high-interest debt. Credit card debt or private loans with interest rates above 7-8% should be paid off before investing, as eliminating that debt provides a guaranteed return equal to the interest rate.
Practical Investment Options for Medical Students
If you’ve determined that investing makes sense for your situation, here are the most appropriate options to consider.
Roth IRA
A Roth IRA is a retirement account where you pay taxes on your contributions, but your withdrawals are completely tax-free. Generally, a Roth IRA is better for a young saver who will be in a higher tax bracket during retirement, which applies to most medical students who have little to no income during medical school but will be high-earning physicians in high tax brackets at the end of their careers [4].
For 2024-2025, you can contribute up to $7,000 annually to a Roth IRA (or $8,000 if you’re 50 or older), but you need earned income to contribute. If you have any income from part-time work, scholarships, or previous employment, a Roth IRA is an excellent starting point.
Index Funds
For simplicity and broad market exposure, low-cost index funds are generally recommended over individual stocks. These funds track major market indices (like the S&P 500) and provide instant diversification with minimal fees.
You can invest in index funds through a regular taxable brokerage account or within a Roth IRA, depending on your situation.
High-Yield Savings Account
While not technically an investment, high-yield savings accounts currently offer interest rates of 4-5%, which is substantially better than traditional savings accounts. This is an appropriate place for your emergency fund and any money you might need within the next 2-3 years.
What Not to Do
As you consider investing, here are important pitfalls to avoid:
Don’t day trade or speculate. The ups and downs of the market will likely be very distracting and take your focus away from your medical studies. Medical school demands significant time and mental energy—you don’t have the bandwidth to actively manage a trading portfolio.
Don’t invest money you’ll need soon. If you need this money in the next 5 years for a house, wedding, food, or other expenses, it makes more sense to have it in a high-yield savings account.
Don’t skip your student loan strategy. One of the best things you can do financially is developing a game plan for your student loans, whether pursuing Public Service Loan Forgiveness (PSLF) or planning to refinance after residency. Knowing how you plan to handle your debt influences all other financial decisions, including investing.
The Bottom Line
Can medical students start investing? Absolutely. Should you? It depends.
If you have personal savings outside of student loans, have established an emergency fund, and want to start learning about investing, beginning with small amounts in a Roth IRA or low-cost index funds can provide valuable experience and benefit from years of compound growth.
However, if you’re living entirely on borrowed money, don’t have an emergency fund, or carry high-interest debt, your priority should be minimizing borrowing and establishing financial stability before investing.
The essence of growing wealth through compound interest lies not in making sporadic large contributions but in the consistency of your efforts and allowing your investments the time they need to mature. Starting small and starting early can have significant long-term benefits, but only if it doesn’t compromise your immediate financial stability [3].
Ultimately, the decision to invest during medical school should be individualized based on your specific financial situation, risk tolerance, and long-term goals. There is no single right answer—but understanding both the potential benefits and risks will allow you to make an informed decision that supports your financial well-being throughout your medical career.
References:
- National Center for Biotechnology Information. (2019). Article in PubMed Central (PMC6416113). PubMed Central.https://pmc.ncbi.nlm.nih.gov/articles/PMC6416113/
- Med School Insiders. (n.d.). Personal finances as a student.https://medschoolinsiders.com/lifestyle/personal-finances-as-a-student/
- KevinMD. (2018, August). Live like a medical student, invest like a professional.https://kevinmd.com/2018/08/live-like-a-medical-student-invest-like-a-professional.htmlElite Medical Prep. (n.d.). The 7 best ways to invest as a medical student.https://elitemedicalprep.com/the-7-best-ways-to-invest-as-a-medical-student/
- Elite Medical Prep. (n.d.). The 7 best ways to invest as a medical student. https://elitemedicalprep.com/the-7-best-ways-to-invest-as-a-medical-student/