“I am prepared to bear huge risks because of the overall nature of equity is volatile.”
“I am young and ok with high risks.”
“I am investing with a long time investment horizon. So I am prepared for very big risks.”
“We all realize that Equity is volatile so I am prepared for big dangers for higher returns.”
If you try to talk to any of them about the difference between risk-taking capacity or the willingness to bear the risk. Or even the difference between their perception of risk and the actual risk. You will get to hear their stance – We run an aggressive risk profile and we are good with an association of extra risk with our investment choices.
So, What is actually happening? What making investors putting their hard-earned money blindly these days?
Many experts or financial planners addressed this new trend that has emerged in the post-COVID market situation. Investors are fortified with an upward trend in the stock market. Disregard of Doomsday prediction, the stock market rallied from march lows within a few months. Although the gains are being erased now and then.
So how this change in buying would affect one’s risk profile or appetite? The new Bravehearts say that the answer is very simple, many investors are of the point that there nothing to be afraid of even if its the sharp fall in the market, it would back onto the track immediately. At least that’s what the history of the Indian stock market has always shown us either from the large falls in the market in the year 2000 or 2008.
Though this might be a wrong lesson for traders. The statutory refusal performance of the past does not give surety of the performance in the future for a reason. Quick recovery of the market from the COVID crisis does not mean that it will always happen this way only. What if it goes in the opposite direction to your imagination? Will you be able to bear the hit?
This is the entry point of real risk appetite into the picture. It is very easy to say, I am okay with taking a risk because of a long horizon period of time or I can take the risk because of nature of equity is risky, all this might sound appealing to you but we would like to ask a very simple question, let’s say market did not respond the way you imagines and you lost like 80 percent of your capital. Would you be able to hold onto your profile and wait for 6 or 7 years for the market to make up your losses or to give you gains?
That possibly would have changed your mind about the actual meaning of aggressive investors or for people’s perception of investing for a long investment horizon or I can take very high risk.