Physician's Money Digest
A recent survey of 750 doctors by foundthat just 2% of doctors surveyedtook a financial course duringmedical school. Mostbusy doctors today need help when itcomes to personal finances. Since thefinancial world can be overwhelming,it's a good idea to start with baby steps.Finding out what you should andshouldn't do when it comes to investingis a good place to start.
Late '90's investor mantra:
During the stock market boom of thelate 1990s, many investors were luredby seductive but dangerous distractions.All too often, these investors met withfailure because they didn't stay true totheir purpose. Instead, investors weredetermined to make as much money aspossible without any consideration forcosts, risk, personal and familial priorities,and taxes. More money now.
The late '90's taught investors a valuablelesson: We need to be wary of hotnew investment trends. Trends come andgo, but the markets have been aroundfor more than 150 years. The same fundamentalsthat applied 150 years agostill apply today. So, if you want to succeedin the stock market, you need tofocus on basic priorities and avoid seductivebut dangerous distractions.
Time and Taxes
What are the basic priorities investorsneed to focus on? First and foremost isyour time frame. Will you need your savingsin a year for a new car or in 30 yearsfor your retirement? Will your money beavailable when you need it? There's nosense investing in a long-term, tax-deferredannuity if you're planning onusing the money in 5 years for a house.Understanding your time frame will helpyou develop a sound investment plan.
Coming in second place on the investorpriority list is taxes. The tax-efficiency of your investments is a factorthat should not be overlooked. If youdon't consider them, taxes will be theinvisible hand in your pocket that consistentlytakes money from your hard-earnedsavings. The earlier you beginaccumulating assets in a tax-efficientmanner, the more money you'll have toachieve your goals.
Fees and Options
Next, consider the cost of each of yourinvestments (eg, commissions, directfees, and administration charges). Investorstend to shrug off these minorcharges because they're usually not thatexpensive. However, over time, these feescan add up. Even if the total cost of yourinvestments is small, it's always a goodidea to check out competitive investmentvehicles and compare fee prices. Comparisons are always in order.
Finally, consider the options availablefor distributing your assets to heirs afteryour death—but don't overdo it. Eventhough IRAs and annuities pass to yourheirs via beneficiary designations ratherthan probate doesn't necessarily meanthat you should invest all your money inthese vehicles. Prioritize your ownneeds, and then do the best you can toensure the efficient and easy transfer ofassets to your heirs.
Reprinted with permission of the publisher fromWhat's Your Investing IQ? By Carrie L. Coghill,CFP®, and Evan M. Pattak. Published by CareerPress, Franklin Lakes, NJ 2003. All rightsreserved. To order the book, call 800-227-3371or visit www.careerpress.com.