Understanding your appetite for financial risk

Chasing returns is a good goal, but …

Are you underestimating the inherent risks while chasing lofty goals like –

18 percent annualized returns via equities?

Or doubling your property worth in 5 years via real estate?

Or hoping to double your money via cryptocurreny?

Are you someone who looks at fixed returns instruments like FD/ PPF etc as something that is for losers?

Financial Risk and returns

Well,

I am no one so say which asset class will give what returns (except fixed returns instruments) but when you are “sold” something with a “gurantee” of “assured” x% returns, do you see the risks? Or is seeing risks is for the boring or losers or unexciting people?

When you are chasing 15 or 18 percent returns via equities, do you understand that there may be times when the returns may be higher but there may be times when returns may be lower, or even negatives. Historically it has always been good and will hopefully continue to be, but are you so over-enthusiastic that you even put your daily expenses or contingency fund at risk of permanent loss of capital because you chose to ignore the risk?

Or do you ignore the risk of liquidity (rather, lack of it) while investing in real estate to such an extent that you face a liquidity crunch if anything urgent comes up and you may be looking to do a distress sale of your fancy apartment?

Each of us have our own assumptions and expectations and capacity, but are we asking the right questions as far as risk appetite is concerned?

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