Investment decisions should not be taken in haste. Proper planning backed by careful analysis and decision-making skills should be the ideal way to move forward with investment activities. However, there are a few common mistakes that everyone should avoid. One of them includes ignoring risk while making decisions.
A large portion of people simply does their investment by only considering the returns characteristics of a financial instrument. Due to this, we witness huge investments done in high-risk funds, so as to earn more profits. But when the market faces a downfall, most of these investors panic and withdraw from investing. They also withdraw their money when facing loss.
Let's explain why this happens. People do not understand the amount of risk they can take. The nature of the market is dynamic and it fluctuates with time. So, if an investor understands the maximum level of volatility that they can withstand, they will find investment to be an easy-going process. So, how much risk should an investor take? Let's discuss this point elaborately below.
What should be your ideal amount of risk?
You can always visit Wealthclock Advisors in Mumbai or other cities for the best financial guidance and investment recommendations. Let us present a few points that will help you to understand the amount of risk that you need to take to make your investment process a better one.
Time frame
The first factor that one should consider is the time frame of their goals. This plays a huge role in evaluating their portfolio's suitable risk quantum. When it is about shorter-term goals, you do not require to expose your investment portfolio to short term volatility.
And if you require money for a specific goal after one year, you can put your faith on equities they always have the possibility of giving negative returns in one year period. But in the case of long term goals, you should take higher risk. Higher risk funds like equities deliver a stunning return over a longer time frame.
They, however, fail in the short run. For the best Risk-based fund recommendation, contact us today!
Income sources and commitments
The way you earn your money influences the amount of risk that you should take. Like if you have a stable monthly income, you need not fear running out of money after a few days and therefore, you can take higher risks. But if you have an unstable monthly income, then you must indulge in the different safe investments with high returns in India.
There are other factors that intimidate your risk-taking capabilities. Like for example the number of people dependant on you. Then, there may be some liabilities and debts that hold you back from making bold and fearless risk-based decisions like pending home loan EMI and other kinds of loans.
So, in the above cases, an investor's saving capacity hugely determines the level of risk up to which they can proceed. High saving capacity will allow you to keep a certain portion of money aside for emergencies and thus, save for the long term.
Present investment corpus
An investor's existing savings will play a strong role in determining their capacity to move through volatility. When can you take a greater amount of risk? If you have saved a significant portion of money after years of hard work, only then can you afford to think about taking a huge amount of risk. Visit us for proper guidance and assistance.
When the market is volatile in nature, the money you have saved up for the least essential goals, you can use them for the needed goals and thereby, make up for the losses suffered. So basically, the risk you take also depends a lot on the nature of your goals. Are you wondering, how to save money fast? Contact us and let the experts guide you thoroughly.
Comfortability
This is another point that needs thorough consideration. How comfortable you are with your investments' volatile characteristics? A common mistake that most investors make is, they simply look at the return numbers and assume this fund is ideal for meeting their goals. One needs to consider how it will perform when the market is facing a tough time.
Funds that provide extremely high returns during the peak market time often tends to crash severely during volatile conditions. So, one should always look forward to investing in funds where they are comfortable with the possible downfalls. Your comfortability will determine your risk-taking ability.
So basically, understanding the time frame and nature of your goal, along with other things like sufficient savings capability are some of the key factors that will help you to decide the amount of risk that you are ready to take and up to what level you are willing to go.