Financial literacy is very important not only in schools but also in medical colleges, the most neglected sector. The result is that most intelligent and hardworking doctors score low on the financial literacy front.
Some common money mistakes that even the smartest, wisest doctors make.
- too much debt
- Over-concentration in real estate.
- Inadequate insurance against the risk of death, disability, professional liability and loss of income.
- Ad hoc investment due to paucity of time
When doctors hear the term ‘financial planning’, some are immediately put off because they don’t have time to plan. They find the process complex and time-consuming; In fact, most believe that they should think about financial planning when they have enough money.
Some doctors are under the misconception that they don’t need to plan. On the other end of the spectrum, there are doctors who think they don’t have enough money to plan.
Doctors need financial planning because:
- Although they have high disposable income, there is a great need for prudent cash flow and debt management.
- They have no social security and therefore must plan properly for retirement, contingencies and unforeseen events.
No more than 40% of your total assets should be invested in real estate. This is only for doctors who effectively use their commercial real estate to run their business or business. People other than doctors should limit real estate exposure to 25%.
Most Indians think of real estate as a safe investment, simply because daily quotes are not available.
The real estate exposure of doctors is mainly in the form of their homes, clinics and hospitals. Barring their residence, their real estate exposure is much higher than other similar income earners.
Most people consider equities or shares to be a risky investment. Doctors are no exception. This is why you see very little participation of doctors in the equity market. Most of the doctors who have exposure to the equity market have done it mainly on the advice of patients.
Equity, as an asset class, should be a major component of every portfolio as this asset class has the potential to provide the highest after-tax returns in an emerging economy like India. The proportion of equities in your portfolio can vary depending on your overall objectives, required returns for the goals, time frame, investment in other assets and ability to sleep well in volatile markets.
The general rule would be that 100 minus the age of the individual is the percentage of funds to be invested in equities. meaning . A person who is 40 years old should have at least 60% of his assets in equity.
It is important to keep the following points in mind while investing in equities.
- Always allocate money in equity mutual funds with a horizon of 4 years and above.
- Always keep an emergency fund set aside and it should ideally be kept in a day time redeemable liquid fund.
- Understand your risk-taking ability and your attitude to risk.
Mutual funds provide benefits such as:
- Access to a professional fund management team who studies the economic, fundamental and technical trends in the market and takes a well informed call.
- Access to a diversified portfolio that can reduce the overall risk of your investments.
I would also recommend investing at least 5% of the portfolio in gold, as gold acts as a hedge against inflation.
As Ben Graham puts it, “The best way to measure your financial success isn’t whether you’re beating the market, but whether you’ve put together a financial plan and a behavioral discipline that helps you beat the market.” likely to take you to the place you want to go”. In the end, what matters is not crossing the finishing line before anyone else, but making sure you cross it.
Views are personal: Author –
Dharmesh Parekh is Mutual Fund Distributor
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