Manage financial risks by investing correctly
|July 22, 2011||Posted by John Border under Risk Management|
One very important lesson I learnt ( albeit late ) is that being risk averse will actually be a financial loss in the long run. I was always happy looking at areas of investment where the risks are manageable. Whenever an opportunity presented itself where I needed to be ‘bolder’ I used to either avoid taking decision and wait for situation to pass over or take the less riskier decision.
Now after a long period of time, if I look at the opportunities I lost I feel terrible and repent the decision. The calculations of the loss from the stocks I decided to skip are enough to make me cringe. Hence I try and advise anyone to keep few things in mind while planning your finance.
1. At a young age when you start our job, it is ideal to invest in stocks. The reason being that your disposable income is good, there are no family based responsibilities. However one urge we must keep in check is ‘ Quick gains’. While there is no doubt that stocks offer opportunities for quick gains, you are here for long term and in long term most stocks do well. Of course you have to keep a constant watch and see or buy more at appropriate time.
2. When you move to the next stage of life, some maturity in terms of understanding of finance would have developed and also the responsibilities. At this point it makes sense to reduce the ‘risk’ and invest in instruments that offer steady return. As the time passes by, risk factor keeps decreasing. However one cannot do away the risk, so what you have to look for is a fine balance between risk and returns.
3. By your forties, you need to start looking at options that give you enough to sustain the existing lifestyle even after retirement. Please keep in mind the adjustment factor due to inflation. I have seen many people ignoring this only to find themselves ending up with a less than expected saving after so many years.
While what is listed above is fairly high level, it is the first step towards a better financial management .