The Most Authentic Guide on Personal Finance and Investments

(Funny) Words of Wisdom : "Someone stole all my credit cards, but I won't be reporting it. The thief spends less than my wife did." ~ Henny Youngman

If You Run From Risk, You Run From Riches

Your risk starts as soon as you have money. It loses value with each passing day due to inflation.

Since inflation will make things more expensive, you can't keep your money under the mattress. You must earn returns on it, which... at the bare minimum... must match the levels of inflation. If not, you will become poorer day-by-day even if you don't spend a single rupee from your corpus.

Given that there is no prevention against inflation, you have to protect and grow your money.

And this is possible through... Investment. 

Investing your money will enable you to earn returns on it. Now, there are three possibilities:

i.   Returns less than inflation: Erosion of your corpus continues, although at a slower pace
ii.  Returns equal to inflation: Your standard of living is maintained
iii. Returns more than inflation: You become richer everyday

However, investment is an activity that comes attached with risk. There is no such thing as risk-free investment.

But, just because you are afraid of risk, you cannot afford not to invest your money. 

You may never to able to educate your children. You may never be able to provide good medical facilities to your family members. You may never be able to own a dream-home. Because, even if you have the freedom to avoid any investment-risk by keeping all your cash at home, there is no escape from inflation-risk.

Logically, therefore, instead of avoiding it you must learn how to manage and protect investment-risk. And this, precisely, is the difference between the crorepatis and the unsuccessful investors.

If you understand and appreciate the fact that risk is something that needs 'management' and not 'avoidance', you have excellent chances of becoming a crorepati. If not, in all probability your life would be an endless financial struggle.

Typically, you will face four prominent types of risks with your investments, namely:

- Default Risk i.e. when you don't get back your investment
- Interest Rate Risk i.e. when you earn lower rate than the market
- Liquidity Risk i.e. when you don't have easy access to your money
- Market Risk i.e. when the value of your investment depreciates

There are varied types of investments such as fixed deposits, bonds, debentures, shares, mutual funds, PPF, EPF, insurance and much more. Given that the nature of each type of investment differs, it is but natural that the risk associated with each type of investment too will differ.

For example, while the fixed deposits face high levels of default risk, their market risk is practically nil. Or insurance has high liquidity risk, but almost no default risk. Or shares are highly susceptible to market risk, but very minimal liquidity risk. 

Concluding, if you have crorepati-aspirations, you have no option but to choose risk-protection over risk-prevention.

You Learn A Lot By READING... And Even More By SHARING.

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