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Why one should invest in what suits their true risk appetite? #story
Generally my father in law does not introduce me to his friends for investment guidance. 1. Because generally I am extremely blunt when it comes to investment guidance 2. I only mostly explain #risks involved
But I think his friend really forced him so he finally introduced me to this gentleman who retired from government service, has good pension and also has a frugal life style so has lot of money saved. He wanted to invest his just matured FD into a MF because FD rates were low.
After few minutes of talking to him I realised he had never invested any money in #stocks #mfs or any equity instruments ever. As I continued I realised that he wanted to invest this money for a long term and wanted the wealth generated to be transferred to his son.
So after few questions I realised that he has extremely low risk tolerance & is extremely conservative investor. But he had shortlisted all midcap funds for his investments looking at past returns his source of knowledge star rating in a famous news paper.
This was Jan 2018. So as politely as possible (this is difficult for us #punekars 😂) I told him our investment jargon that midcap is trading at premium to large cap and all other things. I also told him that this category of fund is not suitable for him as per my assessment.
So instead of that I had suggested him a Dynamic equity fund which I thought will suit his risk tolerance & will be a good entry point into equities. As I was leaving I overheard him say to his wife ‘this guy was to negative & we should continue with our selected funds'
So basically he wanted me to just say yes to him and walk out. :)
I knew he will invest in the midcap fund for sure so did he. Last week he called me again because his fund was down 18% from that point (the fund I was suggesting has not done anything great but its up 2%)
Now he was asking what to do? In such a scenario what suggestion can I give it to him other than saying hold on. 'APNA TIME AYEGA' :)
I am sure he will quit equities forever as soon as he recovers his capital. This behaviour is explained wonderfully with LIFT analogy by
One of the best posts I have read recently.
So moral of the long story. Please invest what suits your risk appetite. Please consider risk before going ahead with your investments. Please remember past returns are for those who entered in that period and in most cases you may not get same returns.
Also important question that comes in my mind is Do investors really understand their own risk tolerance? Do investors have real expectations about return? Do they know the risk of investments in equity? Are they really true to themselves when filling the risk questionnaire?
Only a good adviser can answer these questions.

Most people need advice while investing in equities. Please take advice. Please pay for it. We know far less about everything that we think we know.

#riskmanagement #returnexpectations #selfassessment #risktolerance
Please note this is not for Twitter immortals. :) They can continue with direct investments without advice. This only applies to mortals. 😋
--Thank You--
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