£60,000 Pension Mistake NHS Doctors Make

You know, sometimes people think, oh, I'm going to wait for the market to fall. Who knows when the market is going to be down? The best you can do is to manage your risk properly so that even if the market is down, you're fine. I've got someone, I think a doctor who is based in Ontario now, who's just finished four weeks Academy. His strategy is that 80% of his investment, his family fund are in Broadwell Diversified Index Fund. If you put £60,000 on Farida that you work for the NHS, there might be a bit of a problem. Why? Excellent. So Sonia said you go above the AA annual allowance. I can decide for my limited company to put £60,000 straight into my seat and then invest it. It's self invested. Farida, you have the stage.

So my first question is, when one is investing and they're able to max out on their ISA at the start of the tax year, would you advise they purchase, say all of the stocks and ETFs they''I interested in at the start, say in April, or would you advise to stick to like a weekly or monthly spread up until the next tax year, despite having all of the 20k at the start of the tax year?

Let's deal with that first. Yeah, final. What do you do? What's your job role?

I'm the doctor. I'm a jcf.

Excellent. Jcf. Now, I'm going to give you the mathematical answer. I'm not going to tell you what to do with your money. Obviously I don't know your current situation and your circumstances, how, how much you have in savings, your goals and your risk appetite and your risk tolerance and all that. But I'll give you the mathematical answer. Your question you're asking me is whether it's better to do like a block investment rather than drip feed it.

Yeah.

What we call pound cost averaging. So normally there are two approaches. For many people who have passed through the investing academy who want to do absolutely the least possible work, they want to be investing. Most of them do what you said. The second option, pound cost averaging, where they set up a direct debit, it sends money to their ISA and the ISA has automatic instructions to buy either FTSE, All World Index or S&P 500 or whatever fund they buy. Obviously we are going to look at the different funds or we're going to look at different examples. Okay, so some people want to do pound cost averaging. Why? Because it doesn't require you to be disciplined. It doesn't require to make any good investment decisions. You are not Timing the market because as they say time in the market is better than timing the market. So what happens that if they are buying when the market is high, let's say you are putting in, let's say a thousand pounds every month and it's going by direct debit is set and forget. So if the market is overheated, I usually say when there's a bull market and the market is quite high, the prices of stocks are high. What happens your £1,000, will you be able to buy more stocks or less stocks for either?

Sorry, could you ask that again?

So I'll say it again. So let's say you're, you're doing pound cost averages. So you're just putting in the same amount and it's going in every single month. You're not sort of like having to change anything. So if you put in a thousand pounds but the prices of stocks are so high, so that's a bullish market, everyone is excited, they think the economy is doing well. Will your £1,000 buy more or less of that fund or the stocks you're buying Less. Excellent. Now let's say something goes wrong or something happens. People say it's a market deep. We call it opportunity. Let's say like Trump in February made his announcement trade wars and different stocks fell down. Some stocks fell as much as 12%, 15%. You are still doing the same thing, a thousand pounds every month, will it buy more or less?

Eventually buys more.

Excellent. I think you've got the mass. So pounds cost averaging. Actually try for those of you who watch YouTube and listen to Americans, they call it dollar cost averaging this year. So what pound cost averaging does that, it tries to help you to smooth out, you know, the ups and downs in the market. And at the end of the day it removes the behavioral aspect so you don't have to say, oh I'm going to wait. You don't take, you know, sometimes people think oh I'm going to wait for the market to fall. Who knows when the market is going to be down. What you can, the best you can do is to manage your risk properly so that even if the market is down, you're fine. Are you a first time buyer? So buying your first home, especially as a doctor or healthcare professional, it can be quite exciting but it can be also be a bit overwhelming. You're navigating mortgages, trying to avoid mistakes, dealing with the legal bit and you're not really sure most of the times the step by step process to follow. Now based on my own experience As a first time buyer and I haven't also bought several other houses, I've actually done a step by step mortgage guide that can actually help you through the process and help you avoid costly mistakes. Get it with the link in the description and enjoy. So but mathematically, if you look at just from numbers that have been run and what we call stochastics, it's been found that if you put in the lump sum, you are likely to do a little bit better than someone who does pound cost averaging. This is purely from the data and from mass, you can check that up. So if you do a lump sum at the beginning of the year, your 20k is spending more time in the market. It's compounding. Remember it's any income or any dividends or anything is being reinvested. So for someone who has 20k and they've decided that they are going to be thoroughly passive, they might benefit better and get slightly better returns by investing at that beginning of the year rather than repeating it. Or for someone else might decide, you know what, I don't want to do that, I want to just have the money going monthly and that's fine because that way it helps you to build a habit. Okay? It helps you to build a habit and it makes it, it makes discipline unnecessary. You don't have to be disciplined. If you set it up and is investing automatically the same thing for your saving, you can do it automatically. Okay? So basically I think it all depends on your goals. What's your investment goals, what's your strategy? I've got people in my master class or people have attended the four weeks academy. They wouldn't invest their 20k in an index fund. They might invest let's say 15,000, but the other 5,000, they want to use it to invest in individual companies. But that they've analyzed. They've looked at the income statement, they've looked at the balance sheet, they've looked at the cash flow statement. These are things that we teach in the four weeks and they think, oh, they've looked at the story of the company and they've looked at the numbers. I think this is a really healthy company and they might want to be investing 20% of their total investment funds into individual companies. So that's what we call the core satellite approach. I'll give you an example. Myself, I could decide the bulk of my investment might be in index funds, but I've got like 10%, 20% that like riskier investments. I've always held individual companies myself for many years, but I'VE got someone, I think a doctor who is based in Ontario now, who's just finished four weeks Academy. His strategy is that 80% of his investment, his family fund are in Broadwell Diversified index fund like FTSE All Index, not FTSE 100, that's not that diversified or in S&P 500. And then they've got the other 20%, they decided to put 5% in gold and the other 15% they've invested in different things like individual stocks. They've actually started looking at startups. So they are taking higher risk with that 20% because they are likely to get far better returns and there's also a risk of loss. But if they lose the 20% or the 10%, they still got the 80% so that the cost at night approach. The core is the index fund. All right. I think I've gone a little beyond the question you asked Farida, but I thought it was an opportunity to teach that bit. Did I answer your question though?

Yes, you did. I.

Excellent. And you had another question?

Yes, two more. So my next question is if one has maxed out on their ISA and you mentioned a SIP would be a good way to stash whatever ones you've.

Got, that's what I'll do. I'm not telling you to do that, but I'm sure that SIP is one of the strategies you can do. Yep.

Yeah. So I, I'm not sure if this is the right platform, but I just wanted to get more information on SIPs.

Of course I've got a free like guide on SIPs. I don't know, someone from my team should find it on Shade. So I've got a free guide. You can download SIP for medics and look at SIPs. I've got videos on SIPs as well. We did in February. I think we did do like a live session where I opened the sip, but I'll give you the summary of the sip. A SIP is a self invested personal pension. Everyone in the UK is allowed. If you're working, you allow the maximum of £60,000 that you can put into your pension and it's tax free at the moment. You get tax relief on it. So there's no tax until you withdraw it. And even when you withdraw it, they don't tax your capital gain, they just tax it based on how much you withdraw. Basically if you don't withdraw much, there's no much tax on it. Now you, you allow 60000 pounds per taxi as long as you make as much as 60k. Okay. If you put 60, 000 pounds on Farida, you work for the NHS, there might be a bit of a problem. Why? Can you hazard a guess? Or anyone that knows if Farida just put £60,000 in her sip and she works for the NHS and she's in the NHS pension. Excellent. So Sonia said you go above the AA. Sonia. Redeem my abbreviation now, is that aotic aneurysm annual allowance. So everybody's annual allowance is £60,000. Obviously some people have less, so £60,000 is the maximum. You don't want the processes that. Or you might get like a charge, a penalty from HMRC. But guess what? Let's say Paris, I earn 12,100,000 pounds in the NHS. Maybe 12.5% of your income is going to your pension because that's the maximum that goes to your pension. 12.5% for most consultants and GPs and even some senior doctors or even some resident doctors, then your employer is contributing 23.7% of whatever you end to your pension. So your pension, the amount that's contributed, they look at what we call pension growth from one taxi to another, which obviously might take a bit of time if we get into it, but let's just assume that at the end of the day you had up to 40,000 pounds in your pension port. Some came from your 12.5% and the other came from your employer's contribution because employer contributes and you also contribute. So let's say all together, your pension growth is 40k, that's how much. But remember, your allowance is 60k, so you still have another 20k that you can invest through a SIP. So self invested personal pension, because you are allowed up to 60k. Is that making sense so far?

Yeah.

Now see another situation. I don't work for anybody, I work for myself. So I don't have any employer, pension or NHS patient. So I can decide for my limited company to put £60,000 straight into my SIP and then invest it. It's self invested. So when you open a sip, just like your isa, your isa, you invest it, you make the investment decisions. You may not have to make all the decision for someone like me. I decide what I invest in. For some people, they might not want to decide individuals that they buy index funds for. Some other people they might buy into a pension port, they call it target date fund, that the goal is to retire by 2035 or 2045. And then the highest level is where people actually give their funds for a fund manager to manage. I'm usually not A big fan of that because obviously the fees you pay are usually a bit funny and most of them don't even manage to beat the S&P 500. So that's what a SIP is. You can use your SIP to buy commercial property. I've seen a lot of people do that. They use their sip, bought buy a commercial property and then use it as their office. So their office, basically the business pays back to the pension, pays rent to the pension. I don't think we're going to. Let's not make it too confusing. Basically what your SIP allows you to do is to have a pension that you control, your personal pension. That's what it is, right? Okay, what I'll say someone from my team drop my WhatsApp number if you've got like if you need more hands on or supporter you want to join the community. We discuss things like this and we address it. We're going to look at not just see pan ISAs and all that. We're looking at investing strategy, understanding the market. You're looking at cash flow statement, income statement. They're looking at balance sheet, we're looking at index fund. Then we'll do practical sessions where I actually go live, you see my account and you can do the same as well. So it's not just teaching, it's more like a coaching thing where you can learn how to invest. And then other things we do in the class, Farida, is that we look at things like you do an exercise to understand your risk tolerance because your risk tolerance is not the same as mine. How much risk can you take? Do you sleep well at night? If you've invested 100k so you have to think about it. I always say you can either eat well or sleep well. So your risk tolerance might be different from Sonia. So risk tolerance is psychological, but then there's also capacity to be at risk. Risk capacity. So let's say, Farida, you're a GCF at the moment and let's say I don't know how old you, but you sound young. So sorry. Let's say you're 35. So you probably have another. If you're planning to retire by 50, you have another 15 years, you could work and you might have like no depth. You might, you're still strong compared to someone else who might be like 55 or 60 and they're thinking of retiring, they have nothing invested. And also they've got like a child and they are taking care of a child that has additional, additional needs and they have no other assets. So their risk capacity might be different, they might have the risk tolerance, but the question is, if they lose this money, do they have a fallback plan? Because I don't know about you, but some people might not have money, but they've come from money, so there's a fallback plan. When I came to the uk, I didn't know anyone. I knew that if I lost everything, then I'm back to square one. But basically, risk capacity and risk tolerance, these are things that you think about, that you check. So in the four weeks academy, go into all that and at the end of the day, everybody makes the final day. Make your personal investing plan or your game plan, whatever it is, and then you start investing. Not everyone starts investing every after the sessions, usually some people have to go back and do the seven steps, which is the next thing we are going to look at. You have to go back and make sure you've done the seven steps. There are seven steps you need to do before you start investing for your safety, to make sure that you are actually not investing carelessly. So we're going to look at that seven steps next, after we answer Farida's last question.

I think I found the answer in the chat.

I found the answer excellent. So that's good. Right, okay. So we're going to. The next thing we're going to look at is seven steps to take before you start investing. I usually say to people, there are a lot of people in my mastermind doctors, some consultants, some GPs. I've got a physiotherapist there as well. Excellent guy. And many of them, when they came in, they had never invested money. But there are also a few of them that have lost huge money. One of them, who's going to come on my podcast hopefully this month, lost almost £60,000, lost 12k in crypto, lost in something called. Mmm. That was more like a Ponzi scheme. I knew someone else. I spoke in Mansag Monster conference in. In Leeds and someone shared in the room during my session how he lost about 1.2 million pounds in crypto. So basically, investing is risky if you're not trained, if you're not educated, like Sonia. I don't know what Sonia. You're a psychiatrist, isn't it? Did I get that correctly? Or your surgeon. Sorry, I can't remember what you do. Yeah, geriatrician, of course. So, Sonia, imagine what it will look like if you got a medical student or even like a brand new F1 to come and do your job. It would be a disastrous day even for GPs here. Things might look calm in the GP surgery, but people might be missing cancer. So investment is risky if you're not trained. One Investment is risky if you're not safe. So we're going to come back and look at those seven steps you look at before you start investing. And of course I'll answer more questions as well. Well, I hope you found that helpful and more importantly, I hope it helped you to see investing in a new light. This is just a small section of what we cover in the full masterclass. If you like me to drop more of these clips, just let me know in the comments. Comment, invest and share this video as well with friends who may need to hear this. And if you are ready to start, stop winging it and guessing. Guesswork is not good for investing. If you want to learn how to become a confident investor to learn how to invest properly, check out our Investing Readiness Scorecard with the links in the description. It will help you determine whether you're really ready to start investing and what you need to do before you even start thinking about investing to reduce the chances of you losing money. And until then, see you soon. Bye bye.