Well if you ask my view on the above I have totally different view. The word "RISK" differs from people to people and money .
Let me elaborate it in detail.
Risk can be divided into 3 major categories :
- High Risk.
- Medium Risk.
- Low Risk.
High risk involves investing your money which gives you very good returns in short time or long time.Investments which yield upto OR more than 100% returns. But the risk is very HIGH and there is no assurance that you will get the returns. There are instances where the money you invested becomes half instead of appreciating . Looks scary right ? I am not trying to scare you but keeping you informed about the worst case scenario. This investment mainly involves investing in Stock Market . People cannot predict stock market and fall prey and loose their money. There are many other investments which are very risky. But I always believe in the rule "HIGH RISK HIGH RETURNS" . No pain , no gain.
Now not everyone can take these types of risk. But I never say that people should avoid investing in stock market completely. I totally disagree with that. Let me tell you why I feel that.
One need not invest lot of money in stock market. They can invest their savings partially.
Now the big question will be how much ?? How much depends on how much you save and how much risk you are willing to take.
Risk taking depends on many factors. Like if you don't have any dependency , no major commitments . Usually bachelors fall in this category. As they are not married they usually dont have major commitments . ofcourse there can be exceptions. But in general bachelors can take lot of risk and try to invest aggressively. Aggressive I don't say that one has to invest 100% of the savings into Stock market. You can divide it proportionally .
Say 40% of Savings in Stock Market . ( High Risk )
40% of Savings in Mutual funds , ULIPs etc. ( Medium Risk)
20% of Savings in FDs, PPFs , Post office etc . ( LOW or no Risk)
There is also an option of going for a really good investment which is Real Estate . This is the best possible investment. esp. in bangalore its best !! But not all people can afford , LOT of Capital is needed. Ofcourse people can take loans etc. But it involves lot of risk , time , knowing the right people,contacts, lot of research about the real estate , whether it will grow , whether it will be worth taking a loan for this investment . etc etc . its a big big topic to discuss. Let me not deviate from my topic of Stock Market .
Now coming to division of the savings , I have divided the savings proportionally so that the RISK is averaged out. 100% in STOCK Market is really really risky. Because all your hard earned money will be at risk.
Medium Risk:-
Medium risk involves investing your savings into investments which yield moderate returns and varies from time to time. But the risk involved is medium. Most of the people prefer this type of investment. As most of them are scared to enter stock market, they feel that this is the best approach to invest their money. It depends from people to people again.
Usually medium risk involves people who are married , have some commitments OR people who are not married but have lot of commitments and hence feel this approach is the best.
This approach I would say to divide the risk proportionally based on the above category.
Hence your savings can be divided into 3 zones :
33% in Stocks ( The blue chip stocks and for long term only !! )
33% in Mutual Funds , ULIPS
33% in FDs, PPFs , Post Office etc etc.
Hence this type of division is called Medium Risk Investment.
LOW Risk :-
We can say almost no RISK at all. This investment is the safest possible type of investment which give you very LOW returns and your money is really SAFE here. 100% assurance . FDs , PPFs will always give you assured returns. This investment the division is very simple where majority portion goes to FDs, PPFs .
The people who belong to this category are NOT prepared to take any RISK at all because of their dependency , commitments , etc . There are many who have always want to be on the safest side and even dont try to learn about stock markets , Mutual Funds etc because they are always in the wrong conception that these investments will loose their hard earned money.
I feel really bad at times when people say STOCK Market is like GAMBLING !!! Its the worst thing to hear .. GAMBLING and stock market are no where related. Its a total misconception. If one plays with stock market every minute then he might be addict but not a gambler !! Its that he is risking his time and money .
A Smart Investor should know when to buy the stocks , when to enter into stock market , whether the stock is at the right price to buy, whether the stock will rise in future etc. If he follows this approach I am 100% sure that he/she will never be under loss !!
This is a big topic which I will cover in next chapters.
Hence I want to summarize that the people who are afraid to enter stock market thinking that STOCK MARKET is not always about losing money, then they are totally wrong . RISK is there but if we divide our risk proportionally then one get better returns in future.
I always believe in Investing now ... because we cannot predict our future, when money need will arise. Save now or Never ... Invest with the right approach and not simply dump your money into FDs. Think how much risk can you take, which category you belong to.. I am confident that this approach will make wonders because it is the most widely accepted approach .
I may not be 100% correct in the approach I mentioned. But these are my analysis after 5 years of study i.e. after reading 1000s of articles on investment, reading books , listening to lectures of Investment freaks etc etc.
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