Mid-career financial planning: Diversify your assets to ensure a secure future

Established doctors who are busy and are at the peak of their careers typically see an exponential rise in their incomes. By virtue of this income growth, they manage to acquire their first house, a bigger clinic, and can save for important investments such as their children’s education.


 “Asset allocation is based on the principle that different assets perform differently in different market and economic conditions. Diversification allows an investor to reduce risk.”
-Yogin Sabnis, CFP, managing director at VSK Financial Consultancy Services Pvt. Ltd., Mumbai, India


If you are at this point in your career, you should be focused on managing and growing this flow of income to bring optimum returns on your investments. This article will give you actionable advice to help you do that. If you are at an earlier stage in your career, please see my previous article (http://mdcurrent.in/business-of-medicine/financial-planning-for-doctors-start-early-to-ensure-a-successful-future/) on financial advice for doctors who are starting out.

Key Point: It’s important when managing your investment portfolio to diversify your asset allocation. This approach will help you manage risk while also increasing the likelihood that you will receive a return on your investments.

Effective asset allocation is one of the most important strategies for busy professionals to optimize their returns on accumulated wealth. Asset allocation involves investing in diverse investment classes in a pre-determined proportion. This practice is based on the cardinal rule: “Don’t put all of your eggs into one basket!”

Investment planning and asset allocation

As a physician, chances are good that your hectic work life does not permit you a lot of extra time to[s2If !is_user_logged_in()]…

[/s2If][s2If is_user_logged_in()] manage and regularly review your investments. Often, money starts accumulating and you start to feel pressured to do something about it. If this happens, resist the temptation to invest in schemes proposed by a product distributor, agent, or bank relationship manager that sound too good to be true. It’s important not to get saddled with investments that are the “flavor of the day” that may be risky, tax inefficient, or too complex to understand. Many times, doctors also resort to big ticket real estate purchases as their sole investment strategy, which also isn’t an advisable approach.

For prudent wealth management, it is recommended instead to follow a well-planned asset allocation strategy.

Examples of investment classes are:

  • Equity: shares and equity mutual funds
  • Debt: bonds, fixed deposits, debt mutual funds, public provident fund, etc.
  • Real estate: residential, commercial
  • Gold: physical gold, gold exchange traded funds.

Asset allocation is based on the principle that different assets perform differently in different market and economic conditions. Take the example of domestic stock markets. The equity market at large and most categories of equity mutual funds have shown negative returns in the past year. On the other hand, with interest rates at a high, most fixed income options and debt mutual funds have yielded even double digit returns. Even gold as an asset class has yielded healthy returns. During the past year, an investor who had invested in all the above avenues would have probably incurred losses on his or her equity investments but would have earned healthy returns on debt and gold products. Diversification allows an investor to reduce risk.

You also need to decide what portion of your investment funds should go into each of these asset classes. A qualified financial planner can evaluate your overall financial position, assess your risk-taking ability and preferences, and suggest suitable asset allocation strategies. In the case of well-established doctors, for example, the focus would be on protecting your hard-earned money and optimizing returns on your investment portfolio, rather than chasing maximum returns.

Rebalancing your portfolio

Rebalancing is a natural follow-up step to asset allocation. Investment assets are volatile and their values fluctuate. These volatilities can be your friend and provide opportunities if you rebalance your portfolio at such times.

Consider this very simple example: Your asset allocation is 50/50 for debt with equity. For a corpus of Rs. 100, you would invest Rs. 50 in stocks or an equity fund and Rs. 50 in fixed deposits or a debt fund. Assume the markets go down, and now your Rs. 50 stock investment has become Rs. 44. Many would regard this as a calamity and would think of getting out of stocks altogether. However, a qualified financial advisor will see this as an opportunity. The reduced value of the portfolio is now Rs. 94. As per asset allocation of 50/50, the advisor will take Rs. 3 from deposits and buy equity. This strategy ensures that you take action on both sides of the market by buying stocks when prices are down and selling them when they are up, and not the other way around.

It’s important to remember that your financial profile and situation do not remain the same throughout your lifetime. Hence, it is necessary to periodically review your asset allocation as part of your overall investment strategy.

Retirement planning

Most doctors whom I have talked to have said that they would never retire—and I salute them for that. Retirement planning is an exercise to provide you choice: You work because you want to, and not because you need to.

If you cannot continue your practice due to factors out of your control such as health reasons, then you should have accumulated a decent nest egg that will permit you to lead the same luxurious lifestyle that you are accustomed to.

For these reasons, it’s important when formulating and executing your investment strategy to plan for retirement, even if you plan to work as long as you can.

Estate planning

Estate planning is often a neglected area. Established physicians acquire both movable and nonmovable assets. You must ensure that these assets are smoothly transferred to your legal heirs in an efficient and smooth manner through well-thought-out estate planning. At minimum, you can do this through a will and/or through the creation of irrevocable trusts for which you can designate beneficiaries.

Doctors need to call upon the professional services of a lawyer for proper estate planning. This will help ensure that your hard-earned wealth is bequeathed to your near and dear ones in the manner and proportion that you desire.

You have worked hard to accumulate your wealth. Be sure to plan for the future through proper asset allocation and diversification, retirement planning, and estate planning so that you and your family can enjoy the fruits of your labor.

If you have questions about this topic or any financial topic specific to Indian physicians, please email Yogin Sabnis, CFP, at ymsabnis@vskindia.com. Questions of greatest interest may be answered in future columns.

Mr. Sabnis is managing director at VSK Financial Consultancy Services Pvt. Ltd., which offers financial planning and asset advisory services in Mumbai, India. He is a Certified Financial Planner and has more than 25 years of experience in the investment advisory business. More information about VSK Financial Consultancy Services is available online at www.vskindia.com

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