Buying an ETF Is a Good Start. Here's Why It's Not a Plan.

Ask an AI chatbot or a personal finance forum how a physician should invest, and you'll get some version of the same answer: buy a low-cost index ETF and leave it alone.

That's good advice. It's cheap, diversified, and it beats what most people do on their own. I'm not here to talk you out of it.

But "good" and "right for you" aren't the same thing. The ETF itself isn't the problem. The problem is treating a one-time purchase as a plan. For a physician in a high tax bracket with a growing taxable account, set-and-forget leaves real money and real risk on the table. Here's where.

1. Your risk level doesn't stay where you set it

Say you start with a simple mix: 60% in a stock ETF, 40% in a bond ETF. Over a strong stretch, stocks double and bonds go nowhere. Without touching anything, you're now 75% stocks and 25% bonds.

You never decided to take on that much risk. The market decided for you. And it usually happens right before you'd least want it, after a long run-up.

Rebalancing fixes this. It means trimming what's grown too big and adding to what's fallen behind, on a schedule or when things drift past a set range. It's not exciting, and it isn't about beating the market. It's about keeping the portfolio you actually signed up for.

The catch is that rebalancing in a taxable account can trigger capital gains. Done carelessly, it costs you. Done well, it uses new contributions, dividends, and losses elsewhere to get back on target without a big tax bill. That's work a single ETF can't do for you.

2. "Diversified" isn't as diversified as it sounds

An S&P 500 fund holds 500 companies, but it doesn't hold them equally. It's weighted by size. Today the 10 largest companies make up roughly 40% of the index (Landmark Wealth, citing J.P. Morgan). For most of the past few decades, that number was closer to 20%.

Most of those top names are tied to the same theme: AI, cloud, and semiconductors. So buying "the market" today quietly means making a large bet on a handful of tech companies.

That might work out fine. The point isn't to predict otherwise or to time sectors. Nobody does that well for long. The point is to know what you own and decide on purpose how much of it you want, especially if you already have exposure elsewhere.

3. Taxes are where "good" and "great" really split

This is the big one for physicians. Once your 401(k) and backdoor Roth are maxed, most new savings land in a taxable brokerage account. At high income, every unnecessary dollar of gains you realize gets taxed at the top rates.

An ETF is fairly tax-efficient on its own. But you own it as one position, so the only losses you can harvest are when the whole fund is down.

In practice, an index is never all up or all down. In any given year, even a good one, dozens of the companies inside it are underwater. If you own those stocks directly instead of through a fund, which is called direct indexing, you can sell the losers, bank the tax loss, and immediately buy something similar to stay invested. Your portfolio still tracks the index. You just collect losses along the way.

Those harvested losses can offset gains elsewhere, such as a rebalance, a practice sale, or a real estate deal. They can also offset up to $3,000 a year of ordinary income, with the rest carried forward. For someone in a top bracket, that adds up.

It isn't free money. Harvesting lowers your cost basis, so some of the benefit is deferral, not elimination. And it requires careful attention to wash-sale rules. But deferring taxes for years, and potentially avoiding them through charitable giving or a step-up at death, is a real advantage a single ETF can't offer.

4. The fund doesn't know anything about your life

An ETF is built for everyone, which means it's built for no one in particular. It doesn't know that:

• Your spouse holds a big chunk of employer stock in healthcare or tech.
• You own part of a practice, a surgery center, or real estate that already ties your wealth to one industry.
• You're planning to give to charity and could donate appreciated shares instead of cash.
• You'll need a large sum in five years for a buy-in, a house, or tuition.

When you own the underlying positions, you can tilt around those facts. You can underweight the sectors you're already heavy in, exclude companies you'd rather not own, and pick specific lots to donate or sell. One fund can't do any of that.

What "great" looks like

None of this means abandoning index investing. It means building on it:

1. A clear target mix based on your goals and timeline, not a default.
2. Disciplined rebalancing that keeps you on target while minimizing taxes.
3. Intentional exposure. Know how concentrated you are, and adjust for what you already own outside the portfolio.
4. Tax-aware management. Put the right assets in the right accounts, and harvest losses year-round, not just in December.
5. Direct indexing for taxable accounts large enough to benefit.

The core idea is the same: low-cost, broad, long-term. The difference is someone keeps working on it after you buy.

What if you want to beat the market?

Some people aren't satisfied with matching the index. They want to beat it. That's a fair goal, and it can be done. But it helps to be honest about the odds and where real outperformance comes from.

The odds first. In 2025, 79% of actively managed large-cap U.S. stock funds trailed the S&P 500, according to S&P Dow Jones Indices' SPIVA U.S. Scorecard. Funds that do beat the index rarely keep doing it. S&P's Persistence Scorecard found that fewer top-half funds stayed in the top half than random chance would predict. Paying high fees for a fund that tries to outguess the market every quarter is usually a losing trade.

Outperformance tends to come from more durable sources:

• After-tax returns. What you keep is what counts. Two portfolios with identical pre-tax returns can end up far apart once taxes hit. This is the most reliable edge available to a high-bracket investor, and most comparisons ignore it entirely.
• Evidence-based tilts. Decades of research point to characteristics like value, smaller size, and profitability that have historically been rewarded over long periods. They can also lag for years, so they only work with patience.
• High-conviction, concentrated strategies. Owning fewer, carefully chosen companies can produce results very different from the index, in both directions. It requires a clear process, a long time horizon, and accepting that some stretches will look worse than the index.
• Behavior. Staying invested through downturns and not chasing what just went up adds more to real-world results than almost any stock pick.

The right approach for most people is a low-cost core that tracks the market, with any outperformance-seeking strategy sized as a deliberate slice around it. That way a bad stretch for the active slice doesn't derail the plan. Swinging for the fences with the whole portfolio is how good plans get wrecked.

Who doesn't need any of this

To be straight with you: plenty of people should just buy the ETF.

• Most of your money is in retirement accounts. In a 401(k) or Roth, there's no tax-loss harvesting to do. A target-date fund or a simple two- or three-fund mix is hard to beat.
• You're early in your career. If you're a resident or new attending paying down loans, your biggest levers are savings rate and debt, not portfolio fine-tuning.
• Your taxable account is still small. The benefits of direct indexing scale with account size. Below a certain level, the added complexity isn't worth it.
• You'll genuinely rebalance once a year and leave it alone. If that's you, you've already captured most of the value.

If that's where you are, buy the ETF and spend your energy elsewhere. The rest of this matters once your taxable assets, income, and complexity grow.

The bottom line

Buying an ETF is a smart first step. It's not a strategy. For physicians with growing taxable accounts, the gap between good and great comes down to three things: keeping your risk where you set it, knowing what you actually own, and managing taxes every year instead of once.

Disclosure: This article is for educational purposes only and isn't investment, tax, or legal advice. The 60/40 example is a hypothetical illustration, not the performance of any actual account. Tax-loss harvesting and direct indexing don't guarantee better results, may defer rather than eliminate taxes, and aren't suitable for everyone. Past performance doesn't guarantee future results, and no strategy can assure outperformance. Talk with a qualified advisor about your own situation. Avance Private Wealth Management is a registered investment adviser; registration doesn't imply a certain level of skill or training.

Sources

• The Evolution of S&P 500 Top 10 Companies, Landmark Wealth Management (citing J.P. Morgan data)
• SPIVA U.S. Scorecard, Year-End 2025, S&P Dow Jones Indices
• U.S. Persistence Scorecard, Year-End 2025, S&P Dow Jones Indices