1. A disciplined asset allocation is the key to financial risk management and control.
2. It starts with:-
a) Setting realistic goals at today's cost, with earmarked time frames,
b) Calculating future costs by factoring in inflation,
c) Changing our investment habit from normal ‘earning minus spending is investment’ to scientific ‘earning minus investment is spending’, and
d) Regular investment through compulsory savings plans and active investment plans.
3. Adhering to an asset allocation, based on the formula '100 minus age', for investing in equity products for long-term goals, regardless of market conditions, prevents us from being swayed by crowd psychology.
4. Factors which impact our ability to take investment risks are:-
a) Age - which should decide our risk-taking capacity,
b) Income pattern - whether regular or unstable,
c) Liabilties - our debts and commitments,
d) Dependents - whether a sole earner for an extended family,
e) Past savings and investments - how they are placed and faring, and
f) Industry of employment - as it decides our income prospects and risk factors too.
5. We should ensure that we hold a combination of assets, to prevent erosion of our entire wealth due to adverse impact on one asset.
6. We should never believe that there are risk-free investments, as risks exist in all, stop predicting future asset prices, avoid searching for best investments, and remain focussed on managing our own portfolio actively.
7. For this, our corrective action plan should be well-defined for managing risky events, by fixing our downside risk tolerance level, and also by admitting our judgement errors, as there is no merit in maintaining losing positions endlessely.
8. Such released capital can be utilized elsewhere to help recoup our losses, instead of our unrealistic, subjective opinion about them, which leads to taking undue risks, by ignoring merits of another sound proposition.
9. We can temper our overconfidence and over-optimism by:-
a) Making an investment plan after considering that past performances don’t always get replicated,
b) Taking rational decisions, devoid of intuition, by exercising due diligence with sufficient information,
c) Selecting products suitable to our own goals and risk appetite, and
d) Controlling our over-optimism by cutting out 25-30% from our euphoric growth estimates.
2. It starts with:-
a) Setting realistic goals at today's cost, with earmarked time frames,
b) Calculating future costs by factoring in inflation,
c) Changing our investment habit from normal ‘earning minus spending is investment’ to scientific ‘earning minus investment is spending’, and
d) Regular investment through compulsory savings plans and active investment plans.
3. Adhering to an asset allocation, based on the formula '100 minus age', for investing in equity products for long-term goals, regardless of market conditions, prevents us from being swayed by crowd psychology.
4. Factors which impact our ability to take investment risks are:-
a) Age - which should decide our risk-taking capacity,
b) Income pattern - whether regular or unstable,
c) Liabilties - our debts and commitments,
d) Dependents - whether a sole earner for an extended family,
e) Past savings and investments - how they are placed and faring, and
f) Industry of employment - as it decides our income prospects and risk factors too.
5. We should ensure that we hold a combination of assets, to prevent erosion of our entire wealth due to adverse impact on one asset.
6. We should never believe that there are risk-free investments, as risks exist in all, stop predicting future asset prices, avoid searching for best investments, and remain focussed on managing our own portfolio actively.
7. For this, our corrective action plan should be well-defined for managing risky events, by fixing our downside risk tolerance level, and also by admitting our judgement errors, as there is no merit in maintaining losing positions endlessely.
8. Such released capital can be utilized elsewhere to help recoup our losses, instead of our unrealistic, subjective opinion about them, which leads to taking undue risks, by ignoring merits of another sound proposition.
9. We can temper our overconfidence and over-optimism by:-
a) Making an investment plan after considering that past performances don’t always get replicated,
b) Taking rational decisions, devoid of intuition, by exercising due diligence with sufficient information,
c) Selecting products suitable to our own goals and risk appetite, and
d) Controlling our over-optimism by cutting out 25-30% from our euphoric growth estimates.