“Risk comes from not knowing what you’re doing” is one of the many famous Warren Buffett quotes. Risk also comes from an inability to apply context to a (WB) quote! For example, Mr. Buffett has repeatedly stated that volatility and risk are very different from each other. Statements like these have been used to mis-sell and mis-buy equity and equity-based products.
Risk is not recognising context
Risk is the permanent loss of capital and volatility a temporary loss. However, this is true only if I am not going to redeem anytime soon. That is my goals are years/decades away. If I hold 70% in equity and my goal is due in the next few years, then risk = volatility.
Risk is not starting early
It is not practical to know everything about equity as an asset class and then start investing in it. One will have to get started with some basics in mind and learn on the fly. Starting early makes all the difference here. A 25-year-old can learn on the fly at a much more leisurely pace than a 35- or 45-year-old.
Risk is being short-sighted
Most of us screw up money management by focusing on tax saving alone. We commit large sums of money for several years in unsuitable products and realise our folly later. Often a little too late.
Risk is assuming that we can handle shocks
How many of us who claim that we have “large risk appetite” have actually experienced large shocks (in the stock market or elsewhere) and lived to tell the tale? Theoretically, equity investing is about staying invested through market ups and downs. Easier said than done.
Risk is taking things for granted
I know many people who are still searching for the ideal life or health insurance product, assuming that will not die or get hospitalised during the several months they spend searching. Only when life plucks one of our abilities do we realise how much we took that for granted.
Example: Do not assume your expenses will decrease after retirement!
Risk is the lack of a strategy
If we do not have an objective or goal for investing, we are lost, to begin with. A clear objective is not enough. A strategy about how to get there is needed. Many investors who can define their financial goals, do not have a solid investment strategy in place. A lack of conviction is often the cause for this lack of strategy.
These are some of the risks associated with our attitude. Financial instruments have different types of risks associated with them. More on that later. The best place to get a list of such instrument risks is a mutual fund scheme information document.
Use our Robo-advisory Excel Tool for a start-to-finish financial plan! ⇐ More than 1000 investors and advisors use this!
- Follow us on Google News.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Join our YouTube Community and explore more than 1000 videos!
- Have a question? Subscribe to our newsletter with this form.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Explore the site! Search among our 2000+ articles for information and insight!
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation for promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu gets a superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or you buy the new Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low volatility stock screeners.
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our Youtube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)