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May 4th, 2023
When it comes to investing for doctors, understanding your risk tolerance is crucial. Risk tolerance encompasses two distinct factors: your willingness and ability to take risks. While your ability to take risks can be objectively assessed, your willingness is a more personal and subjective matter. As a doctor, it’s essential to recognize both aspects of your risk tolerance to make informed investment decisions.
Your ability to take risks can be determined by factors such as your financial situation, age, and investment goals. A medical financial advisor can assess these factors to categorise you as a high-risk or balanced investor. However, your willingness to take risks is influenced by your personal experiences and mindset.
For instance, imagine you’re travelling in another country and come across a restaurant with unfamiliar dishes on the menu. You have a history of being adventurous with food, so your ability to take risks and try something new is high. But, recalling your parents’ stories about food poisoning from their travels, you might decide to play it safe and choose a familiar dish. In this scenario, your willingness to take risks is influenced by your personal experiences, which may not be apparent to others.
To better understand your risk tolerance in investing, it’s essential to explore your money story and mindset. Past experiences, such as witnessing a family member’s financial struggles or success, can shape your perspectives on money and investing.
Action Step: Reflect on your past experiences with money and unpack each one. This exercise will help you identify any beliefs or biases that might affect your investment decisions.
Financial education is a powerful tool for building confidence in your investment decisions. By understanding your risk tolerance and personal money story, you’ll be better equipped to manage your finances and make well-informed choices. Additionally, sharing your insights with a financial professional can help them better assess your willingness and ability to take risks, ensuring that your investment strategy aligns with your unique situation.
Remember that understanding your risk tolerance is an essential step in making sound investment decisions. By exploring your willingness and ability to take risks, you’ll be better prepared to create an investment strategy tailored to your needs and preferences.