A Few days back I received a call from Dr. Sanket (Name Changed), asking about the Best Investment Options for doctors. Though he already has made some investments, still was searching for the best.
He said that till now he has done his own research and invested in some 10-12 Mutual funds, 15-20 Direct Shares, New pension Scheme for self and spouse, 5-6 LIC policies, 10-12 Bank FDs, PPF for all family members, Sukanya Samriddhi, Some Corporate Bonds and what not. Phew!!
I was amazed to hear this as my impression was that Doctors are in a Busy profession and they do not have time to do the financial research.
I was wondering if Dr. Sanket has really done the research, then what made him go for so many products. Doesn’t the research suggest “less is always better”?
A good investment is not only about returns but about management too.
The Investment Portfolio should be such that every stakeholder in the family should be able to comprehend and take action on.
He said, he has done all this to diversify the portfolio and has followed the Asset Allocation strategy.
So, he also knew the terms well.
But that was him, who says he has an interest in financial management so he knows how to take care of his financial health.
I do not want to delve into what has he done wrong, as when you are doing it yourself, you have all reasons to believe that you cannot be wrong. You attach emotionally to all the actions you had taken and any counter suggestion may mean to accept your wrongs.
Many doctors still feel and accept that they hardly know anything about financial planning and seek out help from Financial advisors to get them into the right products for the right goals and maintain financial hygiene. (Also Read: How to do Financial Health Check for Doctors)
They understand their paucity of time and want to use whatever free time they get, on professional development or on their own health.
As I always say, this blog is to make you understand the basics and to equip you with the right questions. So, whomsoever you are dealing with for your financial management, you can get the right answers. Even if it is you who are managing the finances, ask yourself. (Also Read: How doctors can choose the Best Financial Advisor in India?)
This post is about the Composition of the Right Investment Portfolio and what could be the best investment option for doctors.
What is the Perfect Investment portfolio for doctors?
“There is no such thing as a perfect portfolio. We’ll only know what was perfect in retrospect. There is, however, a portfolio strategy that will meet your needs. It’s conceived from your financial situation, your understanding of risk, your time horizon and your desires.”– RICK FERRI
Based on the above quote, below are some of the Ingredients of an Investment portfolio for doctors:
The Investment Portfolio should be Simple and easy to understand for you
With Understanding, I don’t mean HOW Investment products work, but the WHY behind the selection of those investment products.
Every Investment (Individually/ Collectively) should be for a specific reason. And the Reason should not be the “High Return”. And Neither it should be, “As suggested by some friend”, “I read it somewhere”, “Manikaran Suggested this on his Blog Dr. Good Money”, “Some expert mentioned this on a TV program” etc.
Have Clear Goals to make Meaningful Investments.
It should be Manageable, not just only for you, but for all the stakeholders who are expected to benefit from it or who have to manage the same in case of your absence.
It happens. Sometimes In the lure of returns, or with so many people giving advice around, or under the impression of you diversifying the portfolio, or with a vague understanding that complex may give you better returns…you tend to complicate the portfolio, not only for self but even for the family members.
If you are not sure on this, then, involve them in the financial decision-making. Educate them on how to do it. Or at least whom to contact in case of your absence.
3. Diversified and Well-Allocated:
Diversification does not mean having multiple products. It means having different NON-correlated products.
Asset allocation requires you to invest in different Asset Classes, and Diversification calls for investing in different products, with different strategies, so to make your Investment portfolio keep going in volatile circumstances.
A good Investment portfolio has all the Asset Classes like equity, debt, gold, selected as per the risk profile and suitable for the long-term goals.
But Don’t over diversify. This will make management further difficult.
4. Tax and cost-efficient:
Now, this does not mean, ZERO tax products, or “Lowest” cost Investment.
Taxation and cost should not make you avoid any investment completely or make you choose a product based on its low taxation. This should be one of the criteria to look into while making Investments.
Product selection should be based on the Asset Allocation and Goals targeted. And then if you find a product that is low on taxation, and better manageable, you may go with it.
Do the cost-benefit analysis and find out how to make the best use of the cost to increase the benefits.
Best Investment options for doctors in India:
Once you agreed on how your investment portfolio should look like, let’s have a look at what kind of investment products are there in India and may suit doctors the best.
There are broadly 4 investment asset classes in India to invest in – Equity, Debt, Gold, and Real Estate. I will write a detailed post on these assets for your better understanding.
For now, let us limit this article to the Best Investment options for doctors.
Broadly all investments are based on the 4 Asset class only. Equity and Real estate are being considered growth-oriented ones and Gold and Debt are the Defensive ones.
Equity Investments can go into Direct Shares, Mutual funds, Unit Linked Insurance Plans, Portfolio Management Services (PMS), AIF (Alternate Investment Fund) category III, New pension Scheme. (Also Read: Should Doctors opt for the New Pension Scheme)
Real estate can be bought as Residential or Commercial Property. You may also go with Land. These days there are Real Estate Investment Trust too, which are just like equity investment but the source of revenue is Rental income. So, it’s a kind of real estate investment in financial form.
Debt investments are fixed income products. Some give fixed interest and some are trade able in the markets and help you generate capital gains too. Fixed deposits, Public Provident fund, Corporate bonds, debt mutual funds, etc. all come under debt allocation. Read more on Public Provident Fund here.
Gold can also be bought in physical form as jewelry, coins, biscuits, etc., or in financial form as Sovereign gold bond, Gold ETF, or Index funds.
Best Investment options for doctors can’t be generalized, as it depends on the Goals, Risk profile, and Asset Allocation of the person.
Plus, the rules of investment portfolio as mentioned above needs to be applied well and thus the product portfolio should be Understandable, Manageable, and Tax efficient. (Also Read: Risk Profiling- the Blood Pressure check before making investments)
Safety, Liquidity, and Returns are the three main features based on what products are chosen. You may like to compromise with the Liquidity if over a longer period of time you expect to get better returns.
Marketers know how to pitch the product and touch your emotional cords. But your selection for your best investment options is good only when you are clear on what you expect from your investments.
If the Insurance policy you are being sold with has high safety, then you need to understand that you are not going to get high returns. If the product is promising high returns, then be ready for the turbulence as it is not going to give you safety.
Mantras to select the best Investment Option for doctors:
- Never Mix Insurance with Investment. Have adequate insurance cover, and keep your investment flexible.
- Always Invest in Liquid investment, So, re-balancing of asset allocation can be done easily.
- If you have no idea about Equity shares, never go with direct shares investment. Ignore the stories you hear about, the growth people got around you. Remember, you hear only success stories.
- Mutual funds can be a wonderful investment tool if used wisely as they can take care of diversification and you will get exposure to all investment classes through this only. (Read: All Doctors wanted to know about Mutual Funds)
- Financial assets (Equity, Debt) are always better in management than Real Assets (Real Estate, Gold).
- Follow the Financial Planning route to have a disciplined approach towards your Investment and goals. (Also Read: Financial Plan or Financial Planning (Prescription or treatment) what is more important?)
Best Investment Options for doctors are those which should fit in their Investment portfolio, and support in the achievement of financial goals.
Selecting products based only on past returns may not be the right approach as returns may get presented in a deceiving manner, just to make you buy the product. Plus, past returns do not guarantee future performance.
You need to have a balance between Safety, Liquidity, and Returns. And for this, you need to follow a Disciplined Financial Planning approach to have a manageable and goal-oriented investment portfolio.