Risks are unavoidable. Let’s invest responsibly!
Several factors could be looked at while deciding your risk profile—the most basic being your mental make-up and attitude to risk.Updated: May 20, 2020 18:53 IST
Never before has risk been as central to our conversations as it is today. It’s an unavoidable aspect of everyday life and even more so in investing. But that should not deter us from living our life or investing for our goals. A few smart investing principles can help manage risk and eventually deliver good returns.
Know your risk tolerance
This is a critical aspect, where you have to assess your tolerance to risk. Several factors could be looked at while deciding your risk profile—the most basic being your mental make-up and attitude to risk. Other factors include your age, lifestyle expenses, dependents, income and income predictability, , and exposure to debt.
Focus on investment goals
It is critical to put down your key investment goals and prioritize them. This lets you realise the time frame you have to achieve goals as well. For ex, retirement income could be your goal and this may allow you a time frame of approx 20 years if your current age is 40 years. Clear goals also help you stay focused and disciplined and keep all kinds of distractions away.
Align investment term to assets
Look at the time frame you have for your goals and accordingly invest in the right kind of asset. Go for low-risk liquid investments for short term, debt or hybrid investments for medium terms of 1 to 3 years and higher risk equity only in case of long term-goals exceeding 4 to 5 years, where returns would outweigh risks.
Focus on quality
Nothing can substitute quality when it comes to investing. Quality investments are less volatile and deliver returns with lower risks. This is true in the case of any asset class. Good investments are about investing in quality companies having a sound business model, stable earnings, and a good ethical management.
Leave impulse out
Keep impulse and hearsay out of investments. Investments are not meant to give you thrill or excitement. Good investments are those in which you invest and wait patiently. Please avoid advice from self-proclaimed experts and those who make tall promises.
Go with an SIP approach
Experts suggest staggering investments rather than committing in one go. SIP is one of the most preferred investment options, according to financial consultants globally. They help reduce risk of timing the markets, keep your emotions in check, and create long-term wealth.
Go to an expert. Invest in a mutual fund
Never underestimate the value of an expert. Investing is a complicated task, where you may not have the expertise to filter through thousands of options while keeping your objectivity intact. A mutual fund is the best route for an average investor and all of the aspects discussed above are easily managed through the mutual fund route.
Risk clearly cannot be avoided, but it can be managed with a responsible approach. An expert can help you overcome risk and reach your goals in life. So, why not get responsible and get some expert by your side? Let’s overcome risk and live a worry-free life!