Survey after survey confirms that a sizablemajority of today's physicians are concernedabout their personal finances. Changes in thehealth care profession, rising costs, malpracticeconcerns, and higher taxes are making for someuneasy economic conditions. To fortify your personaleconomics, consider the following 10 tips for avoidingstressful investments:
The ideal situation:
1. Don't let it out of your sight. The easier it is towatch an investment, the less room there is for stressfulsurprises. When you want to check on it, it shouldbe easy. You can find the currentvalue of your investment in the local paper or the . Be sure to steer clear of investments forwhich the only source of price information is the personwho sold it to you.
2. Never buy a new investment. We live in a worldwhere "new" is synonymous with "better." While thereis little risk in trying a new brand of potato chips, forkingover your savings for a new investment is fraughtwith potential financial stress. Nomatter how good a deal looks on paper, reality has anasty habit of turning that "good" deal into the scrapbin of lousy investments. Always remember, investmentsare not created for your benefit, but for someonewho thinks you can be induced to buy them.
There is no compelling reason to buy a brand newinvestment. If an investment turns out to be a goodone, you'll have plenty of opportunity to take advantageof it after you've had a chance to watch itmature. Even if you have to pay a little more for theinvestment because you put off purchasing it rightaway, you'll preserve far more savings in the long run.Gambling on a new investment that you think mightbe "the one" is risky.
3. Stay near the phone. Stick to investments thatyou can get out of immediately with a phone call oran office visit. Sometimes your needs change and yourinvestment requirements shift. Other times, you realizethat you've got a turkey on your hands, and youjust want to get rid of it. Regardless of the reason whyyou want to sell, once you've decided to make achange, you want to be able to move swiftly. Thelonger you have to wait between the decision to selland the actual sale, the more stress you'll have.
4. Don't invest just to save on taxes. Sure, youdon't like to pay taxesâ€”nobody does. But that doesnot mean you have to throw caution to the wind whenyou see phrases like "tax-free" or "tax-advantaged."You might not only be throwing your money away,you might be sending an invitation to the IRS to makeyour life miserable. There are connivers who believethey can find the invisible holes in the tax code. Avoidthese operators and their schemes, unless you wantfinancial stress of the highest order.
On the other hand, there are legitimate investmentswhose primary appeal is saving on taxes (eg,retirement plans, municipal bonds, and annuities). So,even with chicanery out of the question, you need toask yourself, "If it weren't for the prospect of savingtaxes, would I be comfortable making this investment,let alone even consider it?"
5. Never make an investment based on hope. Aninvestment based on hope is one with high financialstress potential. The word "hope" should have no placein your investment lexicon (eg, I hope this investmentkeeps going up, I hope that stock story I heard was true,or I hope I get my money back). Never invest on hope;always invest on reasonable expectation. The latterrequires concrete knowledge rather than a leap of faith.
6. If you can't explain it, don't buy it. Before youmake an investment, sit down with your spouse (orteenager) and explain how the investment actuallyworks. Describe what is going to happen to yourmoney and how the investment is going to earnmoney for you. The explanation might be straightforwardand simple. However, there's a chance you couldhave trouble explaining the investment.
The real question:
When you start trying to explain an investmentwhose description includes words like put, call, derivatives,collateralized, futures, or short sales, then youmight not be able to make it through the first sentencewithout a flurry of "Huh?" Whywould you invest your money in something when youdon't even know what it really is? If you can't explainthe investment, don't bother buying it.
7. Don't get suckered by titles. Titles are to thefinancial world what packaging is to frozen dinners:no matter what's inside, the box always looks better.Sales reps are "financial consultants" or "portfoliomanagers." Everyone you deal with is a vice presidentof something. Even the sleaziest of operations havenames that imply pedigree. As a rule of thumb, ignorethe title of any financial entity (ie, person, firm, orinvestment) and determine what's inside the packagingbefore you invest a dime.
8. Never allow yourself to be sold an investmentover the phone. Never ever buy an investment overthe phone. If you follow this 1 simple piece of advicefor the rest of your life, you'll avoid more financialstress than you would ever want to deal with.
The bottom line:
9. If you don't want to own it forever, don't buy itin the first place. Whether it's Elvis memorabilia,1960's lunch boxes, or graffiti art, there's always acollectible that appears to be an express ticket to FortKnox. The truth is that the vast majority of thereturns belong to people who developed a pure interestand quietly collected items (eg, memorabilia)when few others cared. Unless you dearly love the item and wouldn't mindowning it forever, don't even think about buying it.
10. Walk away while you still can. If you are ever theslightest bit unsure or uncomfortable with a prospectiveinvestment, you do have an optionâ€”one that millionsof investors wish they had grabbed for themselves. Youcan walk away with all of your savings intact. Even if itturns out that you passed up a profitable investment,there are still thousands of opportunities for you tomake a profit. However, there is no one who is willingto make up for your loss just because you passed upthe opportunity to walk away.
Patrick J. Flanagan is an independent financialplanner based in Point Pleasant, NJ. He has beena contributor to Physician's Money Digest since itsinception, and he offers financial planning, insurance,and investing services. He welcomesquestions or comments at 800-969-0899.