Don’t Start Investing Until You Understand This

I never put more than 5 to 10% of my investable assets in a startup. Why? If the startup goes to zero, our startups could happen. It would be a bit painful. But that will not be the end for someone like me. I invest in individual companies. If I was investing for, let's say for my little one from day one we're looking at the index fund because basically I started investing 20 years ago, but now I'm thinking, yeah, if I mess up, now I'm approaching 40. If I mess up, the cost is a bit high. Why am I getting. The cost of the mistake is high. But let's say when I was starting out, I didn't even know so much about index fund like 20 years ago. So basically I just started with individual stocks and I got really, really quite good at analyzing companies. Especially now that I got to that point. I was able to leave my salary job three years ago. I don't want to take any risk that takes me back. If you're a doctor or healthcare professional and you're worried about investing and you get confused about investing and since you worry that it's risky and you worry that you lose money, but you know that you should be investing and you don't understand concept, when you hear things like ISA stock and shares isa, it gets you confused, Then you want to watch this video. This video is a live recording of a live Q and A session with almost 100 doctors and healthcare professionals with burning questions around investing, Lifetime ISA investments that doctors could do even above 40 years of age, as well as how to avoid the dreaded 60% tax trap and much more. So if you're interested in those topics and you'd like to hear the answers we discussed and the questions that we addressed, then you want to dive into this video. And if you are new here, I'm Dr. Andy Green, founder of MoneyWiseDoctor.com I'm an ex salary GP, an entrepreneur and investor and a MoneyWiseDoctor.com we help doctors and healthcare professionals make smarter financial decisions. Dive in. Right. Okay, so is there anyone who has got any confusion around index funds or versus stocks and shares? Okay, if there's no question around that, I'll ask you one question. Now if you're buying individual stocks versus buying index funds like let's say S&P 500, which one has more risk? Just tell me in the comments. Individual stocks or S P500. So just write other individual or S P500. Individual stock interview. Okay, we are all agreed on that. Okay, that makes sense to Me now. Excellent. Thank you so much everyone. So when we come to risk, because once you understand this, then risk becomes easy for you to understand. When it comes to risk. We started with cash, cash has less risk. Moved on to fixed income assets like bonds, treasuries, guilds, whatever they are called, they are all in the same group. And then we moved up to index funds, which is basically a saying, I don't know which stock is going to outperform. So rather than trying to find the needle in the haystack, I'm just going to buy the whole haystack. I don't know. I don't know. It's a basket of stocks. I don't know which of them is going to do well. I'm just going to buy the whole index. So when you hear index, index is just a list, just like you open a book and you see the index, it's just a list. So index fund is not one fund. If you see S&P 500 is the top 500 companies in the US there's Roselle 2000 which is the top 2000 companies. So there is FTSE, FTSE 100, the top, I think London Stock Exchange. So like for instance, I've got a friend who wants to invest in in his community, he wants to invest in semiconductor manufacturer, but he doesn't want to buy Nvidia. Nvidia is doing so well. But remember, when an investment is doing too well, if you buy it at that point, if you pay more for it, mathematically your return is less. If you buy a company, for instance, when it's undervalued, then your returns have a high chance to do well even if you make a mistake. Now he doesn't want to just buy one company. He doesn't know which company is going to win. The semiconductor is. So he's buying an index fund that is just semiconductors. So he's buying it and adding it to his portfolio. Again, he's an experienced investor. Someone else might think, well, I don't want to go into all of that. I just want to keep it simple. Just like the lady I mentioned to you. In our community, they just buy one fund, they buy an S P500, the other one buys reset 2000 or one buys a global fund is automated. Instructions are all set up. It happens every month and it just cooks in some places. You can even see like some platforms will provide you what we call target date funds, where you don't even have to decide which fund you invest in. You just say, I want to retire by 50 or 60, this is how much I need to invest. And then you set up automatic instructions. Now this is why you need your own plan based on your risk appetite and risk assessment. Sorry, risk appetite and risk capacity. How much time you're willing to invest for someone like me? I invest in individual companies. But if I was, if I was investing for, let's say for my little one, from day one, we're looking at the index fund because basically I started investing 20 years ago, but now I'm thinking, yeah, if I mess up, now I'm approaching 40. If I mess up, the cost is a bit high. Why am I getting. The cost of the mistake is high. But let's say when I was starting out, I didn't even know so much about index fund like 20 years ago. So basically I just started with individual stocks and I got really, really quite good at analyzing companies. But every year I still assume that, well, I appear. I always approach the stock market with a healthy bit of caution. I don't assume because you've done it year after year after year. Especially now that I got to that point, I was able to leave my salary job three years ago. I don't want to take any risk that takes me back to being a salary doctor or anything. I'm not saying there's anything wrong with that. But obviously you see people taking less risk at some level. Okay, so that's basically it. Now there are other investments that could actually come with higher risk. Obviously we've talked about individual stocks, we've talked about index fund, but there are other things. For instance, those of you that followed me on LinkedIn or if you follow my newsletter, you know, I invested in a startup. A company is a software company. And if you're based in the uk, there's something called eis. So EIS allows you to invest in innovative companies and the government will underwrite 50% of your risk, meaning that if this company goes bust, you can claim back 50% of the money invested as tax relief. Okay, so that's one approach to risk management that I implemented there. But obviously these are more risky investments. Startup companies 100 fail and if they don't fail, they will do. Some of them do like 100 times. Imagine I invested in Apple when it went public. Obviously your money would have 100x, 1000x actually. So that's basically the risk premium. Because when I'm investing in a startup, I want 10 times minimum return on my money, you know, because there's a risk premium there that I want. Okay, Right, okay. I don't know. I'm just going to pause here so that if you've got questions you can ask. I think we've got like five more, a few more minutes. I'm going to take five minutes to explain risk capacity and risk tolerance and then we can draw the curtains there and continue in the group chat with any questions we've got.

Okay, now this is very crucial topic. Have you secured your family's financial future? Many times you're busy as doctors and healthcare professional. That's fiber. And if we overlook our life insurance and income protection until it's too late, you're taking a bit of a risk here. I mean nobody can predict the future. You need to protect what matters most. Think about life insurance and income protection. This is really quite important to protect your most valuable assets. Now if you're not sure about what you need or how to go about it, check the link in the description. I have a free guide that can help you step by step with. Let's get back to the episode.

All right, we've got more real, I've got more realty. Sorry, that must have been a mistake. All right, T you go next then.

Okay, so yeah, I just wanted to ask about investing in startups and all. For someone who wants to sort of start their own investment journey, what's the vehicle through which one can engage in that? I mean, it's not something I know one can do individually. So what would be your advice? How do you look up for, you know, which one to go for and how do you get into that?

Do you want me to be blunt or.

Absolutely.

I know because I've had, I've had a one on one session with you. I know you like, you like bluntness. It's not a good idea for a starter. If you're just investing, you're just starting your journey. It's not a good idea. Why? Because startups have high failure rate and.

Also.

The ones I've invested in, it wasn't there in the open market, it was invitationally. They invited me to invest. Yeah, they invited me. It's sort of like a bit of a network thing and someone, you can then invite someone basically. And then thirdly, you have to be an accredited investor. So you've got to be an accredited investor and that means different things in different countries. It means that one, you earn enough money, I'm just going to put it, put it that way. You had enough money or you have enough assets that you're saying the government doesn't have to look after you. So those startup investments are not FCA covered. A lot of times they are off road. Imagine you're driving off road. So the government is trying to say, I think in the US you've got to. I've gotten the number. I think it's a million or thereabouts. You have end or if you've got a million asset or 250,000 income in the last year, the UK zone is around 100k or something. But basically you've got to be an accredited investor, you've got to sign. In fact, I've got one, I've got to sign tonight and get someone to witness it. You've got to sign to say, look, this is. I'm happy to go along with this investment. I'm not like, obviously this is not protected fca. So startup investing, that's a bit of a deep end. Except you have an edge. If you're working in the startup world, you're working in a company that is a startup. You're living in Silicon Valley, you're seeing startup, you are seeing what we are not seeing. Other people are saying, you might take an advantage, you might have an advantage or what we call an edge to invest in this company. But if you don't, I wouldn't start there. I wouldn't start there. Another question, I can't really stop at this point without telling you guys something really important. It's called asset allocation. Part of risk management. Asset allocation. Now you understand why the investment master class is a whole four weeks and still the four weeks, day one was five and a half hours until you are going to be in the investment master class this year. So the first day is five and a half hours and it took us four weeks to get to the end of it. And still we had 12 weeks of question and answer and all that. Because something like asset allocation in itself is a hole to our lecture. So when I say asset allocation, this is how I break it down to you guys in a nutshell. Let's say you've got like 100k. I'm going back again to Dr. Sam. Pat. I'm just assuming she's got 100k, she might say no, but let's say you have 100k. Think of it as a pie. I think, okay, this pie, I'm going to take like half of it, which is 50k, and put it in a broad, well diversified index fund, maybe s and P, 500. Some financial advisors might tell you to do what we call 100 minus 50, sorry, 100 minus X, where X is your age. So if you are 50, they'll say put 50%, 100 minus 50. So 50% in bonds, 50% in stocks and bonds. Sorry in stocks and shares. I think it's an absolute load of nonsense. Just because most doctors, you don't really even hit your earning capacity till when you are in your late 30s. Some people don't hit their become consultants in their 40s or maybe they basically start earning much later, much more. So that is the point that you might want to be a bit more aggressive than somebody who started working at 18 years. I started investing at 20 years, so that's why I don't like the 100 minus X. I think everyone needs to know what their own plan is and their own situation. If you want to retire in 10 years and you are 30 years now, you want to retire at 40. That means your plan cannot be the same as someone who is say 30 years. I want to retire at 65. They might take less risk to get them there. So basically when it comes to asset allocation is being able to, you know, invest your money in different portions in different vehicles. By vehicle, I mean stocks, bonds, startups, index fund, real estate, being able to distribute it in such a way that overall you're not taking an unnecessary risk. I'll give you an example. I never put more than 5 to 10% of my investable assets in a startup. Why? If the startup goes to zero, our startups could happen, it would be a bit painful, but that will not be the end. Okay, that wouldn't be like oh yeah, because that was 5 to 10% and that 5 to 10%. If it actually, if it does like it gets startup, it works out if it does 10x. So that means if I put in 10% and that it does 10 times 10 times 10 is 100%. That means it's double the rest of my portfolio. But if it goes to zero because I've allocated my assets carefully, that's not the end of the world. Another approach, let's say I see one of the people in the mastermind, he's 32 because he's here. I don't think I need to say his name. He said, well, I'm 32, I plan to work till I'm 60 anyway. I'm not rushing anywhere. I enjoy what I do. He's in training, he's a resident and he said I'm just going to go all in in stocks, but I'm not buying individual stocks. I'm just going to buy 90% index fund and then have 10% which he uses to invest in individual stocks. And his goal is that if he sees that he's doing quite well with it, then he would want to increase his investment in individual stocks, maybe go from 1090 to 2018 compared to a GP partner, one of my bosses, amazing guy, I call him my boss because when I was still in training he was in London, I was in Cornwall. But if I needed some advice, I rank him. He's planning to retire next year, so he's planning to do less stocks. So he's probably moving his portfolio now to 80% in bonds and 20% in stocks. Not everyone needs to do that, but that's his risk appetite. He wants to have more of his money in fixed income that he can assess because I've seen some really sad stories. 79 year old gentleman working the cream shift in out of hours. Fantastic guy said, well, he took his NHS pension a large chunk. I can't remember the amount, whether it was 400 000. He took it at 60. In those days it was 60, it's going to be the 68 now, it could be 71. And he took that large chunk and invested it in an investment that didn't turn out all right, but now he needed cash and he wasn't getting it and he needed to go back to work. So again, that wasn't a good risk management. But in his case he said to me, I wish I knew how to invest when I was younger, I wish I took more interest in my finances. And he didn't have a private pension like a SIP that he controlled or anything like that. So basically your risk management depends on your situation. That's where asset allocation comes in for some other person might decide. I'm really, really good in real estate, I understand property. I've got a friend who attended our last investment masterclass. He attended because he had like six property already all around the same area in the Midlands, but he wanted to start diversifying into stocks. So for him 60% of his assets are real estate and he's planning to put 20% in stocks and 20% in bonds. So it comes down to individual. That's why personal finance is very personal.

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 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.

Are really ready to start investing or on 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.