“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.
Subscribe and join the freefincal Youtube community!
Connect with us on social media
- Twitter @freefincal
- Subscribe to our Youtube Videos
- Posts feed via: Feedburner
- We are also on Google PlusandPinterest
Do check out my books
Get it now. It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You WantMy second book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a youngearner
The ultimate guide to travel by Pranav SuryaThis is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for ₹199 (instant download)
Free Apps for your Android PhoneAll calculators from our book, “You can be Rich Too” are now available on Google Play!
Install Financial Freedom App! (Google Play Store)
Install Freefincal Retirement Planner App! (Google Play Store)
Find out if you have enough to say "FU" to your employer (Google Play Store)