Health over wealth

In addition to your risk appetite, should you consider your health condition as well when you choose your investments? We discuss how to integrate your health condition with your personal finance decisions.

Creating protective assets

If you suffer from chronic illness such as a heart condition or acute asthma, you must consider your health while taking personal finance decisions. Why? Besides suffering from physical effects of such illnesses, you have to cope with emotional stress, too. Your financial state, if possible, should alleviate your stress, not increase it.

You should, therefore, adopt the following two steps: First, create a large corpus of ‘protective assets’. This enables you to protect your existing standard of living.

Protective assets is a portfolio structure consisting of two elements — contingency fund and insurance protection. The amount in your contingency fund must equal at least a year of your average monthly expenses. There are two reasons why you need a large contingency fund. One, there could be unexpected medical expenses that your health insurance may not cover. And two, you have a high risk of temporary loss of your active income. What if your doctor advises you a month’s rest and your employer does not allow you to take such a long paid leave?

Your contingency fund must be kept in investment products that have zero risk of capital loss, for your primary objective is to access the money at short notice, not earn high returns. You can set up your contingency reserve by systematically investing in a financial product each month over a span of 1.5-2 years.

The second part of your protective assets consists of healthcare and life insurances. You should have appropriate healthcare cover in addition to the employer-offered health benefits. You should have your existing health issues covered, if possible. It is important that you buy a comprehensive healthcare policy and not necessarily one that is cheaper.

The second step is to manage your personal finances in such a way that you do not add more anxiety to your already stressed physical and emotional state. The question is: What should you do to alleviate your financial stress?

Alleviating financial stress

You should not take large loans, including mortgages. Such loans can be a source for additional stress if there is a temporary loss of active income. Importantly, you should pursue your life goals, including your children’s education fund, only after creating your contingency fund. Your goal-based portfolios should not contain more than 25 per cent allocation to equity. This will help to reduce financial anxiety caused by high volatility in the stock markets. This is applicable even if your current level of income is high. The argument is as follows: Your investment is primarily a function of your savings, not income. And your savings can be stressed because of your health conditions.

Finally, you should, if possible, avoid large investments in illiquid assets such as land and property. Remember, you may have to incur healthcare expenses at short notice, and liquidity plays an important role in such cases. For the same reason, invest in financial gold, not physical gold, if you must.

If you suffer from chronic illness, you should not only change your lifestyle but also adjust your personal finances. Such adjustments will alleviate your physical stress, for financial stress is an added cause for physical illness.

The writer is founder of Navera Consulting. Send your feedback to portfolioideas@thehindu.co.in