In March 2020, I watched my entire portfolio move in the same direction at once. Stocks down. Real estate under pressure. Two asset classes, one outcome. I thought I had built something diversified. I hadn’t, not really.
If you own stocks and real estate and consider yourself diversified, this is worth reading carefully. Because diversification has six dimensions. Most physicians are only covering one or two of them.
Disclaimer: This article is for informational and educational purposes only and does not constitute financial, legal, or investment advice. Any investment involves risk, and you should consult your financial advisor, attorney, or CPA before making any investment decisions. Past performance is not indicative of future results. The author and associated entities disclaim any liability for loss incurred as a result of the use of this material or its content.
Why Physicians Are More Concentrated Than They Think
Before we get into the framework, there’s something worth naming that most financial content skips over.
Before you’ve made a single investment, you are already concentrated.
Your primary income is human capital tied to one profession, one license, one body showing up to work. That’s a significant single-point-of-failure that most asset allocation models don’t account for. Which means the bar for true diversification, for physicians specifically, is higher than it is for someone whose income is already spread across multiple sources.
That’s not a reason to feel behind. It’s just useful context for why getting this right matters more for us than for the average investor.
The Ray Dalio Standard, And the Honest Reality
Ray Dalio talks about what he calls the holy grail of investing. The idea is that holding enough truly uncorrelated assets can dramatically reduce portfolio risk without sacrificing much in the way of returns. He puts the number at around 13 to 15 uncorrelated assets.
When I first heard that, my reaction was somewhere between impressed and overwhelmed. Most physicians I know are working with two or three asset classes, not 15.
But the number isn’t really the point. The point is the principle. And the honest reality is that finding 13 to 15 truly uncorrelated assets is hard for most of us. We’re not running endowments. We have clinical schedules, limited bandwidth, and we’re building something sustainable alongside a demanding career.
So what do you do with that gap?
You get more intentional within the asset classes you already have. You stop assuming that because you own two different things, they’re actually behaving independently. And you start looking at your portfolio across more dimensions than just asset type.
That’s what this framework is for.
The Six Dimensions of True Diversification
1. Asset Class, And What’s Actually Inside It
This is where almost everyone starts. And it’s the right starting point. But I want to spend more time here than most people do, because even physicians who understand asset class diversification are usually thinking about it too narrowly.
The basic version goes like this: stocks and real estate are different asset classes. They respond to different economic forces. Having both is better than having only one. That’s true. But it stops short of what’s actually useful.
Think about what we mean when we say stocks. You probably already know that owning a single stock is very different from owning a broad index fund. Within equities, you can hold domestic and international exposure, large cap and small cap, growth and value, different sectors. The equity asset class has a whole internal structure to it. Most physicians who invest in the stock market understand this, at least intuitively.
Now apply that same thinking to real estate.
Most people hear “real estate” and think of it as one thing. But real estate has sub-asset classes just like equities do, and they don’t all behave the same way. Multifamily residential. Industrial. Self-storage. Medical office. Retail. Hospitality. Mobile home parks. Each of these responds differently to interest rate cycles, employment trends, demographic shifts, and consumer behavior.
Multifamily held up relatively well through the 2008 financial crisis because people still needed places to live. Retail got hit hard. Industrial and self-storage have had long runs because of e-commerce tailwinds and changing consumer habits. Medical office is driven by a completely different set of forces than any of those.
So when you say you own real estate, what does that actually mean? If everything you own is multifamily in the same market, you’re much more concentrated than the label “real estate investor” suggests. If you have exposure across different property types and different markets, you’re actually using the asset class the way it’s designed to be used.
A lot of physicians build their real estate portfolio deal by deal, chasing whatever looks good at the time. The result is concentration inside an asset class they thought was already diversifying them.
Dimension one isn’t just about owning different asset classes. It’s about understanding the internal structure of each one, and being intentional about where your exposure actually sits within it.
2. Correlation
This is the dimension that March 2020 made visceral for a lot of us.
Correlation measures how much two assets move together. Truly diversified assets have low correlation, meaning when one goes down, the other doesn’t necessarily follow.
The problem is that correlation isn’t static. Assets that look uncorrelated in normal markets can suddenly move together in a crisis. Liquidity dries up, sentiment shifts, and things that were supposed to zig when the market zagged, don’t.
This is why I now think about not just what I own, but how those assets have historically behaved relative to each other, and what happens to that relationship under stress. Normal market correlation is less useful information than stress correlation.
3. Liquidity
Stocks and real estate are not interchangeable when you need access to capital. A publicly traded position you can exit in a day. A real estate syndication with a 5 to 7 year hold, you can’t.
Illiquidity isn’t automatically bad. You’re often compensated for it with better returns. But it means you need to think carefully about whether your assets are liquid at the right times for your life. Are you thinking about a career transition, a sabbatical, a business investment in the next few years? Those questions should inform how much of your portfolio is locked up and for how long.
4. Time Horizon
Related to liquidity, but distinct. This is about matching your investments to when you actually need the money to work for you.
A long-term real estate fund with a 10-year hold serves a different purpose than capital you’re planning to redeploy in 18 months. Both can belong in a well-constructed portfolio. But treating them as interchangeable is how you end up with a mismatch between your investment structure and your actual life.
Ask yourself: what do I need this money to do, and when? Then look honestly at whether your investment timelines actually line up with that.
5. Tax Treatment
This is where physician-specific framing earns its place in the conversation.
The after-tax return is the real return. A real estate investment that generates passive losses and depreciation looks very different on paper than one that doesn’t. The tax efficiency of different asset classes, and the structures you use to hold them, can have a significant impact on what you actually keep.
If you haven’t sat down with a CPA who works with physician investors to look at how your portfolio is structured from a tax perspective, that’s worth prioritizing. A lot of physicians optimize for returns before tax and underoptimize for what stays in their pocket.
6. Geography
This is the most overlooked dimension on this list.
Single-market concentration in real estate is a real risk that’s easy to miss. If you have multiple properties in the same city, or heavy exposure to one regional economy, you’re more correlated than you think. Local job market shifts, population changes, municipal policy decisions, these things affect all of your properties at once if they’re all in the same place. Geography applies beyond real estate too. If your income, your practice, your home value, and your real estate investments are all tied to the same regional economy, that’s a form of concentration risk that doesn’t show up in a typical asset allocation breakdown.
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The Self-Audit
Pull up whatever you use to track your investments and run it against these six dimensions. Not to grade yourself, but to see clearly.
How many asset classes do you hold, and what does the internal structure of each one actually look like? How correlated are they under stress, not just in normal conditions? Do you have the right balance of liquidity for where you are in your career? Are your time horizons matched to your actual goals? How is your portfolio taxed, and is there room to improve that? And is there geographic concentration hiding somewhere you haven’t looked?
Most physicians, if they’re honest, are missing coverage in at least two or three of these. That’s not a failure. It’s information. And information is what lets you build something more resilient going forward.
Stocks plus real estate is a start. But the physicians who build portfolios that actually hold up are the ones who go a layer deeper and ask: how do these things actually behave together, and where am I exposed in ways I haven’t fully accounted for?
If you want to dig into passive real estate, specifically, including how to evaluate deals across these dimensions before you commit capital, the Passive Real Estate Academy is where we cover this in depth. We’re not always open for enrollment, but you can join the waitlist at passiveincomemd.com/prea and we’ll reach out when the next cohort opens.
Disclaimer: I am not a CPA, attorney, or financial advisor. The information in this post is for educational purposes only and should not be construed as tax, legal, or financial advice. Please consult a qualified professional about your specific situation before making any decisions.
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Peter Kim, MD is the founder of Passive Income MD, the creator of Passive Real Estate Academy, and offers weekly education through his Monday podcast, the Passive Income MD Podcast. Join our community at the Passive Income Doc Facebook Group.
