On a summer Monday morning there was great relief from heat and humidity because of an unexpected drizzle. As the rain increases I found that the parents have opened their umbrella to protect their child from rain, some of them are in search of shelters from getting wet and one fast-food vendor took a large plastic sheet and protected his food stuffs not himself. So everyone has their own way of risk tolerance and survival.
In day to day work, we are taking risk and simultaneously try to survive from it. Risk and survival go hand-in-hand in every field of life. But there is a significant difference when it comes to taking financial risk.
We all know that investing is a powerful tool to increase one’s wealth. But at the time of investing we do not ask ourselves why this Mutual Fund Investment is being done? What are the products to consider? Getting into investing without knowing the reason and clear understanding is like setting off on a treasure hunt without map and clues. It is not difficult to understand why and what investing is because once you understand these two aspects it is very easier for you to choose the right product which will meet your needs.
The first step to investing is to understand the purpose of investment which will determine the level of risk tolerance and the kind of product to suits your risk profile. For instance at the age of 30 if you want to invest for Planning for Early Retirement and for your child’s education who is one-year old, you have a long time horizon and can face the financial ups and downs. So you can take risk. But when you are looking for a short-term goal or for some contingency then you have to take low risk and the risk tolerance is very low for this investment. So in both the cases the types of products will be different to meet the different needs.
Your age and time frame of your goal play a significant role in your How to Invest in Mutual Funds and risk tolerance. Your family environment also plays a big role while taking risk. For instance, if you are the sole bread-earner and have family responsibility of sick parents and children then you may be a risk averse and conservative investor. On the other hand if you are well-settled in your career with limited responsibility you may take more risk at a comfortable level. Guide to Financial Planning strength also plays a vital role in the field of risk tolerance. If you are financially secure or have inherited wealth, you can have more risk tolerance power.
The decision of how much risk to take and what type of product to invest in is very critical in the field of investment. You can have a professional view for taking risk. Life Insurance Planning also plays a vital role in the field of investment while taking risk. If you are insured up to your liabilities then your mind set will allow you to take slightly more risk. Therefore life insurance forms the bedrock of financial planning and best way to begin one’s financial journey. Needs and goals in a person’s life are changing from time to time; the periodic revaluation is needed in your mixed asset allocation, time horizon, liquidity etc. Whether the risk taken is awarded with the desired returns should also be checked from time to time.
You should take risk to the extent where you feel comfortable by keeping in mind and have understanding for the long term goal and have funds for rainy days then he will have a sound sleep.
Keeping this mantra in mind, make the right financial choice of products that will give optimum returns on your money. Wrong choice can make you lose money.