Hi fellow investors,
Ever walked into the ladies' shoe section of the mall during the sale season?
They have long tables filled with all kinds of shoes and each table has the shoe size written on it. I happened to have very petite feet (a size 36) and I look forward to the sale season to upgrade my shoe collection. And during the sale, I go to the mall oozing with enthusiasm to pick up some great heels at flat 50% off, fight off scores of other women and claw my way to the front of the table only to find ugly black chappals in my size!
However, at the end of the store, there is a table filled with some amazing shoes and without the commotion around it, but they are SIZE 41 - 42. Ugh! I hate having small feet during the sale season. All the best brands have their best discounts on shoes in the 40-42 size range. They even have color options! They have so many great options that I am even tempted to try them on just to see what they'd look like. But I do NOT buy these shoes because they are NOT my SIZE. They may be the BEST shoes out there but I DO NOT BUY it. Why would anyone spend money on shoes that would ever fit them, right?
So, in spite of knowing not to buy shoes that do not fit them, why do people invest without knowing what is the right fit for them?
Everyone is always searching for:
'The best Mutual Funds to Invest in?'
'Tell me where can I get the maximum return possible'
'How much returns will I make through this investment'
The best returns are in the shoe of size 42 but clearly, they do not fit me and will only be a waste of money and similarly, so will your investments if they are bought considering only the 'best returns' as criteria.
You need to invest your money in the investments which are 'RIGHT' for you as per your risk profile. The investments which fit perfectly well in the asset allocation determined by your risk profile just as my feet size determine the final shoe design I pick.
What is this Risk Profile?
The risk profile is your risk-taking capacity and how much risk you can take so that you can peacefully sleep at night. It is based on your ability to take a risk and your willingness to take the risk. Where the ability is more a function of your age, your money, and your goals, willingness is completely behavioral and is determined by your life experiences and education.
Before you start your investments, it is very important that you take a risk profile test (we have attached an indicative risk profile for your reference) and know what is the RIGHT Debt-Equity mix for you.
High Risk = High Returns
Low Risk = Low Returns
Where you make the investment decision based on the risk you are taking, you will eventually be able to achieve your goals with peace of mind and not worrying about the volatility in the markets.
Shouldn't that be the whole point of investing in the first place?
Hence, don't just run behind the highest returns, they might not be the right fit for you. Instead, understand what you want to achieve by investing, plan accordingly, and then invest.
Disclaimer - These articles are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision.