How Much Risk Can You Afford?

#1
What is Risk?

Wikipedia says that risk is nothing but the potential that a chosen action or activity will lead to a loss (an undesirable outcome). It also says that almost any human endeavour carries risk, but some are much more risky than others.

Consider the concept of risk, when we talk about finance. Financial risk is the probability that returns on your investments will be variable. This includes the outcomes that the returns can be better than expected (gain = good), and that returns can be worse than expected (loss = bad). To sum it up, risk is nothing more than a state of uncertainty, of more than one possible outcome.

When you invest, risk is inherent in almost everything that you do.
This is partly because there are so many types of risk from market risk to interest rate risk to country risk and many more. The trick is to know 2 things, both of which are equally important.

First, which risks can you diversify away?

Second, how much risk can you afford to take?


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How Much Risk Can You Afford?
 

DanPickUp

Well-Known Member
#2
Hi Vishal,
I really appreciate the definition of risk that you have mentioned both in layman terms as well in financial terms. The financial risk that you have mentioned is more with regards to investment products which carry high risk factor like ULIPs and mutual funds where one deals with equity.

However, there is another insurance product which though is indispensable for every individual carries no investment benefits to the insured. It is a health insurance policy which is purchased as a risk cover and assures financial assistance to the insured and his/her family during times of medical emergency.
What is your profession radhikasood :lol: