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What’s Your Investment Risk Strategy?

Sensible investment and wealth management requires a balance between your risk profile and investment portfolio volatility.

Both of these factors can be combined to make up your investment policy and investment philosophy.

It’s important to understand that your risk profile is really comprised of two aspects: your risk attitude and your risk capacity. Risk attitude is the true measure of your personal comfort with risk. Are you willing to risk a less favourable outcome whilst attempting to achieve a more favourable one? (risk vs return).

Risk capacity is your ability to sustain a less favourable outcome without jeopardising your original goals and objectives. Risk capacity is affected by factors such as time horizon (allowing you time to recover from an adverse return) and total wealth (allowing you to go through a decline in account value and still maintain your desired spending).

The two areas are as important as each other and it is vital that you take both into account when making important investment decisions. For example, if your risk attitude means that you could sustain a 25% market decline without any impact on your goals, the appropriate portfolio may contain 60-80% equities.

However, if your risk attitude measure indicates that any decline in excess of 10% would cause you cold sweats and sleepless nights, then the 60-80% equity portfolio is clearly not the right approach. Instead, you should be invested into a portfolio with a lower percentage of equities.

So, how can you address your full risk profile?

There are two keys:

First, you must obtain a true measure of your risk attitude.

This can be obtained by using a comprehensive risk profiling system. You won’t be able to achieve this by second guessing it yourself, as it’s highly unlikely you’ll know enough for the assessment to be successful. You should speak to your Financial Adviser/Planner and ask them what they’re using. One of the most comprehensive tools is provided by FinaMetrica. Their assessment contains 25 questions and your score (1-100) will be compared against the whole pool of those who have completed the questionnaire.

You should then make sure you interpret the score correctly and are able to act upon the information effectively.

Secondly, you should work through a process of financial planning to determine your true goals and objectives. This step is CRUCIAL as without it, how will you know what your tolerance is for risk capacity (i.e. how will you know how much loss you can absorb without it affecting the likelihood of you achieving your goals).

Once you know how much downside you can tolerate, you can then determine what the appropriate investment policy should be, using risk attitude as a constraint. This should lead you towards deciding what percentage of equities you want in your portfolio.

The alternative approach is that you remain invested in a higher percentage of equities, but prepare yourself that you may need to adjust your goals (retire later, spend less, spend more, etc) if the portfolio value falls too much. Of course, you may reach your goals sooner if the higher risk portfolio grows at a faster rate than the lower risk portfolio.

The Financial Tips Bottom Line

When you break it all down, it’s more than likely that you’re trying to achieve your goals and objectives in some form. And most people would rather try and reach their goals with the minimum amount of risk (yes, note I said some people – there’ll always be the risk takers amongst us).


The subject of investment risk should not be underestimated. If all you’ve done up to now is assess your risk on a scale of 1-10 (and believe me, this is VERY common), maybe it’s time to take a more comprehensive approach. After all, it’s only going to improve your understanding of your own risk tolerance and how much risk you can afford to take.

Why Joining A Home Based Business Isn’t That Big Of A Risk Afterall

When I talk to people about my home based business one of the main things I hear is how much of a risk it is. People (well, most people) are afraid of taking a risk especially when it comes to money and if it isn’t a sure thing they don’t want to have anything to do with it. And while I totally understand that I don’t think that a home based business is as big of a risk as most people might think it is.

First of all the investment of starting a home based business is ridiculously low when compared to the start up cost of a traditional business. Most businesses cost tens or hundreds of thousands of dollars… talk about pressure. If their business fails they aren’t just out a few hundred dollars they are out more money than most people make in a year! Now THAT sounds like a risk to me. On the flip side a home based business usually only costs a couple hundred dollars (maybe a thousand in some cases) to start! An investment sure, but not one that is going to ruin you financially if you fail. Losing $250 is hardly life altering for anyone.

Also, unlike a traditional business you don’t have to throw yourself in it entirely. You can still keep your full time job and keep the security of a regular paycheck while you are building your business. Very few people are willing to give up their full time jobs before they start making money in a business and working a home based business is super easy because it only requires a few hours a week of work allowing you to still keep your job and your life intact while you’re building a business that will change your life forever.

Finally, with the help of the internet home based business owners are no longer required to sell their friends, family, co-workers, and neighbors their products or make them sit through business meetings and beg them to be a part of your team. Because with the power of the internet behind you you are able to network with people all over your city, state, country and even through the entire world. You don’t need to bug your best friend about joining your business because there is an entire world wide web to market to. That means no more beating your family and friends over the head with your business… it’s never been easier to get sign ups than it is right now with the help of the internet… never!

So as you can see when it comes to starting a home based business… the risk just isn’t that great!

Advantages of Investing in India

India has a 20 million-strong scientific and technical manpower, more than the population of Taiwan. The number of literates in India is more than the combined population of France and Japan. India has a vast domestic market – a 300 million-strong middle class population with substantial purchasing power and another 700 million-strong population whose capacity to purchase is gradually increasing. Being a vibrant democracy with a large democratic set-up supplemented by a broad-based legal framework including arbitration and an independent judicial system, it boasts of a vast network of bank branches, financial institutions and well-organized capital and money markets. These attributes make India a favorable destination for NRI investments.

India also has a huge network of technical and management institutions of the highest international standard for development of excellent human resources. India has an enviable record of honouring its international financial obligations and has never defaulted. The country has a strong English language base for business purposes. The strong and vibrant small-scale sector is good enough for establishing strategic alliances with its foreign counterparts. The strategic location of the country in the context of the third world markets particularly the rapidly growing South and South-East Asian markets together with a supportive infrastructure base help in promoting a healthy environment for NRI inflows into the country.

India has more billionaires than China. This year there are 15 billionaires in China but last year in India, there were 20 billionaires, according to the Forbes magazine. India has emerged as the world’s fastest growing wealth creator, thanks to a buoyant stock market and higher earnings. A number of Indian companies surpassed last year’s net profit in just six months of the current fiscal, reflecting accelerating corporate earnings. 44% percent of the top 100 of the Fortune 500 companies are present in India. With its manufacturing and service sector on a searing growth path, India’s economy may soon touch the coveted 10 percent figure.

The Indian diaspora’s business has turned hot of late. Government has always wooed non-resident Indians assiduously to attract more inflows. Apart from the money transfer business, which compared to money invested in India is smaller; the Centre is trying its best to persuade NRIs to pump money into the country like never before. And, it has seen superlative success in re-cent years. The Prime Minister of India has announced dual citizenship for people of Indian origin. It has given a big boost to the NRI community across the world. With recruitment levels for overseas jobs skyrocketing, there is scope for more money coming into India. According to a recent Business Standard report, in the last three years, 850,000 people went to West Asia alone. And even as the official figure for Indians living in the US is put at 2 million, unofficial estimates put it at 3.5 million. And emigration to Canada and Australia continues to grow.

The ministries concerned have made sure that rules and regulations are simplified to make inflows easier. Where does the government see money being invested? Investment in bank deposits and company deposits may be made by NRIs. They are subject to different rules; investments with and without repatriation facilities are permitted under the schemes. As of now, NRIs are permitted to make direct investment in partnership and proprietorship firms in the country. This, the NRIs can do by way of subscription for shares or debentures of Indian companies. Further, they can also now place funds in company deposits. NRIs who undertake not to seek at any time repatriation of the capital invested in India and the income earned thereon are permitted to invest on non-repatriation basis. NRIs also have the option of investing in mutual funds floated by domestic public sector and private sector mutual funds on non-repatriation basis.

All they have to do is to make their applications to the Reserve Bank. They can also now invest in money market mutual funds (MMMFs) floated by commercial banks and financial institutions with authorization from the apex bank or the Securities and Exchange Board of India (Sebi), the market regulator. Yet another option is to invest in the securities of the Central or State governments and the National Plan/Savings Certificates by making remittances from abroad or out of funds held in their NRE/FCNR accounts. In effect, with regulations tapering off, compared with the scene some 7-8 years ago, non-resident Indians today have more choices to invest their hard-earned money in India. And, to make things easier and hassle-free, the government is doing all it can to persuade Indians who make big money away from home to park their funds here. Commendable though is the fact that the Indian diaspora has also begun to believe that it is better to channel their money home, thereby contributing to the development process of the nation they actually belong to.