Skip to main content

Know Your Risk Appetite Before Making Investments



On a routine walk last week, the light drizzle was a welcome relief for me from the heat and humidity that was building up. As the drizzle increased, I could see concerned parents fish out large umbrellas to protect their children from the raindrops, old men make valiant run for shelter to save themselves from getting wet and the newspaper vendor take a huge sheet to cover his wares and not himself. While I was happily humming one of my favourite rain songs, I observed that everyone had a different method to address the risk of getting wet.


For much of human history, risk and survival have gone hand in hand. Right from the moment we get up in the morning, drive or take public transportation to work, till we get back into our beds, we are exposed to risks of different degrees. While we may not have much of a control on some risks, we seek out some risks on our own (speeding on the expressways or betting over a cricket match, for instance) and enjoy them. Some of these risks may seem trivial, others make a significant difference to the way we live our lives, especially the risks we take with our finances. We all know or have heard that investing is a powerful tool to increase one's wealth, and many of us blindly get into investing for one reason or the other. However, at the time of investing, we do not ask ourselves: What is this investment for? What are the products I need to consider?


Getting into investing without a clear understanding of the process involved is like setting off on a treasure hunt without a map and clues. It is not difficult to understand why and what investing is, and once you understand these two aspects, choosing the right financial product to meet your needs will be easy.

The first step to investing is to understand the purpose of the investment, to determine your risk tolerance and the kind of products that would suit your risk profile. For instance, at 40, when I am planning for my retirement at 60, I don't need the money for another 20 years. Hence, the kind of risk I can take will be higher as I can withstand the ups and downs of the stock markets and stay invested. On the other hand, if the money that I have is meant for rainy days, then my purpose is to protect my savings so that in case of unfortunate events, there is cash available to help me tide through the problems. Therefore, the risk tolerance will be very low for this money and the type of products I choose will have to meet this need.


While your age and your time frame for meeting specific financial goals play a role in determining your risk tolerance, there are also other factors that affect your tolerance for investment risk. Your personality, personal experiences, and current financial circumstances also come into play. For instance, if you're the sole breadwinner responsible for the care of a sick or an elderly relative, or have lived through a period of economic downturn, you may be a more risk-averse, or conservative, investor. On the other hand, if you have a promising career, a generous salary, and little in the way of financial responsibilities, you may be more comfortable in taking greater investment risk.


A simple way to check your risk tolerance is to ask yourself how comfortable you are in taking risks. For instance, if changes in the value of your savings and investments keep you fidgeting and worried, or your instinct is to sell your investments every time the market drops, then you may want to consider shifting to a more moderate investment mix, with greater emphasis on predictable, income-producing investments such as fixed deposits or traditional life insurance.

If you're a risk-taker by nature and have at least 15 years to meet your goals, then you may be comfortable allocating most of your assets to a diversified portfolio of stock, equity funds, and unitlinked insurance plans, along with certain fixed-income investments that have the potential to provide the strongest returns over the long run.


The decisions on how much risk to take and what type of risks to take are critical to the success of your investments. You can get a clear view of your risk-taking ability with professional help and a scientific risk profiler.


Life insurance forms the bedrock of all financial planning and the best way to begin one's financial journey. The needs and goals in a person's life keep changing and a periodic re-evaluation of your mix of asset allocation, time horizons, liquidity and risk-return equation is necessary to optimise the desired outcomes.


Keeping this mantra in mind, make the right choices of financial products and your invested money can go up in value. But with the wrong choices, you may end up losing it all.

 

Popular posts from this blog

Post Office Deposits Interest Rates

Best SIP Funds to Invest Online   SIPs are Best Investments when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich For further information on Top SIP Mutual Funds contact  Save Tax Get Rich on 94 8300 8300 OR You can write to us at Invest [at] SaveTaxGetRich [dot] Com

How Tax Deducted at Source (TDS) works?

    THE tax season is here. And if you are an employee you can't blame your employer for deducting large chunks of money from your salary towards tax deducted at source ( TDS ), which he is legally obliged to do. Your bank will also deduct some percentage from your FD interest of Rs 10,000 or more towards TDS! So what is this TDS all about? How is it computed? Are there any changes this year? Read on... What is TDS? TDS reduces your taxable income and could even provide tax relief! The TDS collections account for 40 percent of the total taxes collected in the country. As the name suggests TDS is the amount of tax that is deducted at source in certain types of income . The TDS thus collected is deposited in the Government treasury within a specified time. How is it computed? Some of the types of income where TDS is applicable include salary, interest, rental fee, interest on securities, insurance commission, dividends from shares and UTI/Mutual Funds, commission and brokerage

Modern day balanced mutual fund approach

Buy Gold Mutual Funds Invest Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Call 0 94 8300 8300 (India)   In reality, most balanced funds have a strong tilt towards equity instead of a mix of equity and debt THERE are various types of mutual funds available to investors with specific features. Often investors have a particular idea about a specific type of funds in terms of their features and risks, but that is not what is actually available. Therefore, it is necessary for an investor to understand the actual position before picking up a fund. This requires some work on the part of the investor. One example can be the situation with balanced funds. Name is not representative: One of the first things that an investor has to understand is that the name of the fund is often not representative of its investment pattern. The name often represents only the aim of the fund, and not what it actually is.

ELSS Tax Saver

ELSS Stands for Equity Linked Savings Scheme.   ELSS Fund are mutual funds with 3 years of lock in period and offer income tax benefit under section 80C. They are open ended to purchase. Not all Mutual fund Investments are eligible for tax exception. List of Tax Saving Mutual Funds   Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.   Invest Tax Saving Mutual Funds Online Tax Saving Mutual Funds Online These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)   Download Tax Saving Mutual Fund Application Forms from all AMCs Download Tax Saving Mutual Fund Applications   These Application Forms can be used for buying regular mutual funds also   Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds ) HDFC TaxSaver ICICI Prudential Tax Plan DSP BlackRock Tax Saver Fund Birla Sun Life Tax Relief '96 Reliance Tax Saver (ELSS) Fund IDF

Should you invest in tax-free infra bonds?

THOSE looking to save tax should take note of the latest buzz in the debt markets. Power Finance Corporation ( PFC ) and Housing Urban Development Corporation (Hudco) have launched bonds that will help you save more tax than your regular infrastructure bonds. Soon, IRFC and NHAI are likely to follow suit with similar bonds. KP Jeewan, general manager, debt markets, Karvy Stock Broking, says: "The coupon in these bonds are completely tax-free and those in the highest tax bracket can expect an effective yield of 10.75 per cent, compared to the 9.5 per cent a 10-year public sector bond would offer." The PFC and Hudco offerings are of 10- and 15-year tenures, with coupon rates of 7.5 and 7.75 per cent, respectively. Unlike other regular tax-free infra bonds, the tax benefits in these bonds are not capped at ` 20,000. Even besides these tax free bonds, those in the highest tax bracket have had plenty of opportunities to invest in tax saving infrastructure bonds under 80 CCF i
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now