3 Investment Principles Dentists Can’t Afford to Ignore
The science of dentistry and the science of investing follow similar processes. Just like chemistry has fundamental laws that help us understand the structure, properties, and reactions of matter, the science of investing has fundamental laws that help us understand the behavior of different types of assets (businesses, property, and financial assets like stocks and bonds).
I realize there are dozens of opinions out there—family, friends, financial advisors, and the media. But opinions aren’t scientific facts, and there is an academically supported science that exists for investing. Nobel laureates, university professors, and financial professionals formulate much of what we know about this science. The science of investing is not subjective, and it’s not a series of mantras you’ve heard from parents or friends.
Most dentists have an investment portfolio that looks more like a roulette table than a periodic table of elements; their portfolios feel much more like gambling than investing. If you don’t know anything about the science of investing, it’s likely you will feel confused, uneasy, or frustrated about your investments, especially during down markets. Here are a few tips to help you learn the science of investing:
1. DON’T HOLD TOO MUCH CASH IN YOUR ACCOUNTS. IF YOUR MONEY ISN’T GROWING, YOU’RE LOSING AT LEAST 6% OR MORE PER YEAR TO INFLATION.
– Cash is King but holding too much cash is not sensible, Inflation reduces purchasing power of your money
– If you are generating less than inflation on your long term investments than you are earning negative returns
– Do not mix Insurance & Investments, let insurance be only for financial protection
– Look avenues for generating higher than bank saving accounts rate returns on short term cash like short term bonds with easy liquidity and less penalty.
2. DON’T PICK STOCKS OR MUTUAL FUNDS THAT DO THE SAME THING. THE ODDS ARE NOT IN YOUR FAVOR.
– Investing in direct equities and mutual funds doesn’t make sense as both invest in equities, choose your bet
– Diversification should be major criteria while investments. “Do not put all your eggs in one basket”
– No one can predict stock market no matter how knowledgeable he/she is, it has been proved over time again and again that the more you remain invested in markets
– Averaging and Power of Compounding both will help you to generate good returns in long run
– Goal based investing will help investor to invest for long term.
3. DON’T TRY TO MOVE IN AND OUT OF THE OVERALL MARKET OR INDUSTRY SECTORS
– Market performance is cyclic, do not try to predict the direction of market or bet on one particular industry/sector
– Remain invested for longer time with good sectoral diversification
– Invest in different asset classes like Equities, Bonds, Gold, etc.
Note: Before starting your investments, ensure you and your family is sufficiently insured (Life & Health Insurance).
When in doubt, do not hesitate to take help. “Penny saved is penny earned”.
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