Risk is the detail that attracts least attention from investors. This is even more ironic when we consider that misplaced risky investment bets are often the cause behind the downfall of many a portfolio.
What is risk?
fPut simply, risk is the amount of money an investor can afford to lose in his quest to clock a certain return on investment. If the investor can withstand significant loss on his original investment this risk appetite is high. Another trait of such an investor is the ability to endure sharp fluctuations in his portfolio. Conversely, if the investor cannot withstand sharp fluctuation in his portfolio or cannot afford to lose money on his original investment, his risk appetite is moderate to low.
Why risk must be considered while investing?
While evaluating an investment it is important to gauge the risk along with the probable return as risk and return are two sides of the same coin.
How to manage risk?
Your risk appetite must dictate your choice of investments. If you have a high risk appetite then high risk investments like a unit-linked plan with high equity exposure could be ideal for you. On the other hand an investor with low to medium risk appetite can consider a unit-linked plan(ULIP) with lower equity component or opt for an endowment plan for the relatively low risk.