Avoid Stressful Investments

Survey after survey confirms that a sizable majority of today's physicians are concerned about their personal finances. Changes in the healthcare profession, rising costs, malpractice concerns, and higher taxes are making for some uneasy economic conditions. To fortify your personal economics, consider the following 10 tips for avoiding stressful investments:

“Money is a headache, and money is the cure.”

—Everett Mámor

Survey after survey confirms that a sizable majority of today's physicians are concerned about their personal finances. Changes in the healthcare profession, rising costs, malpractice concerns, and higher taxes are making for some uneasy economic conditions. To fortify your personal economics, consider the following 10 tips for avoiding stressful investments:

1) Don't let it out of your sight. The easier it is to watch an investment, the less room there is for stressful surprises. When you want to check on it, it should be easy. The ideal situation: You can find the current value of your investment online in the local newspaper or the Wall Street Journal. Be sure to steer clear of investments for which the only source of price information is the person who sold it to you.

2) Never buy a new investment. We live in a world where "new" is synonymous with "better." While there is little risk in trying a new brand of potato chips, forking over your savings for a new investment is fraught with potential financial stress. Investment reality: No matter how good a deal looks on paper, reality has a nasty habit of turning that "good" deal into the scrap bin of lousy investments. Always remember, investments are not created for your benefit, but for someone who thinks you can be induced to buy them.

There is no compelling reason to buy a brand new investment. If an investment turns out to be a good one, you'll have plenty of opportunity to take advantage of it after you've had a chance to watch it mature. Even if you have to pay a little more for the investment because you put off purchasing it right away, you'll preserve far more savings in the long run. Gambling on a new investment that you think might be "the one" is risky.

3) Stay near the phone. Stick to investments that you can get out of immediately with a phone call or an office visit. Sometimes your needs change and your investment requirements shift. Other times, you realize that you've got a turkey on your hands, and you just want to get rid of it. Regardless of the reason why you want to sell, once you've decided to make a change, you want to be able to move swiftly. The longer you have to wait between the decision to sell and the actual sale, the more stress you'll have.

4) Don't invest just to save on taxes. Sure, you don't like to pay taxes—nobody does. But that does not mean you have to throw caution to the wind when you 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 make your life miserable. There are connivers who believe they can find the invisible holes in the tax code. Avoid these operators and their schemes, unless you want financial stress of the highest order.

On the other hand, there are legitimate investments whose primary appeal is saving on taxes (eg, retirement plans, municipal bonds, and annuities). So, even with chicanery out of the question, you need to ask yourself, "If it weren't for the prospect of saving taxes, would I be comfortable making this investment, let alone even consider it?"

5) Never make an investment based on hope. An investment based on hope is one with high financial stress potential. The word "hope" should have no place in your investment lexicon (eg, I hope this investment keeps going up, I hope that stock story I heard was true, or I hope I get my money back). Never invest on a wish; always invest on reasonable expectation. The latter requires concrete knowledge rather than a leap of faith.

6) If you can't explain it, don't buy it. Before you make an investment, sit down with your spouse (or teenager) and explain how the investment actually works. Describe what is going to happen to your money and how the investment is going to earn money for you. The explanation might be straightforward and simple. However, there's a chance you could have trouble explaining the investment.

When you start trying to explain an investment whose description includes words like put, call, derivatives, collateralized, futures, or short sales, then you might not be able to make it through the first sentence without a flurry of "Huh?" The real question: Why would you invest your money in something when you don't even know what it really is? If you can't explain the investment, don't bother buying it.

7) Don't get suckered by titles. Titles are to the financial world what packaging is to frozen dinners: no matter what's inside, the box always looks better. Sales reps are "financial consultants" or "portfolio managers." Everyone you deal with is a vice president of something. Even the sleaziest of operations have names that imply pedigree. As a rule of thumb, ignore the title of any financial entity (ie, person, firm, or investment) and determine what's inside the packaging before you invest a dime.

8) Never allow yourself to be sold an investment over the phone. Never ever buy an investment over the phone. If you follow this one simple piece of advice for the rest of your life, you'll avoid more financial stress than you would ever want to deal with.

9) If you don't want to own it forever, don't buy it in the first place. Whether it's Elvis memorabilia, 1960s lunch boxes, or graffiti art, there's always a collectible that appears to be an express ticket to Fort Knox. The truth is that the vast majority of the returns belong to people who developed a pure interest and quietly collected items (eg, Star Wars memorabilia) when few others cared. The bottom line: Unless you dearly love the item and wouldn't mind owning it forever, don't even think about buying it.

10) Walk away while you still can. If you are ever the slightest bit unsure or uncomfortable with a prospective investment, you do have an option—one that millions of investors wish they had grabbed for themselves. You can walk away with all of your savings intact. Even if it turns out that you passed up a profitable investment, there are still thousands of opportunities for you to make a profit. However, there is no one who is willing to make up for your loss just because you passed up the opportunity to walk away.