Knowing their Risk appetite is important yet ignored by most of the investors because they may not know how to asses their Risk appetite, so let us discuss which factors influence individual risk appetite.
First of all know the importance of risk appetite, most of the times we hear that Investment in stock markets are subjected to market risk, but do you every wonder if it is risky why still people able to earn profits , because they risk proof their portfolio, knowing the risk appetite we can plan our goals and we can avoid selling in wrong time.
Factors that influence Risk Appetite:
If you are having Income that can fulfill all your needs and still having surplus amount you can take more risk, but if you are having income that just fulfill your needs go on low risk.
Tenure of Investment:
How long you want to keep your investment, if you planning to invest for more than 10 years like for child’s education or marriage you can go for high risk , but if you are planning to invest foe less than 3 years for your marriage or to take care your parents or to buy any property like home or car go on low risk.
If your age between 20- 30 you can go on high risk because you might have just started earning or not having much expenses, if your age between 30 -45 you can take moderate Risk because you might need to fulfill your needs at the same time plan for future as well, If your age between 45 to 60 you can go on low risk , if you are age above 60 instead of investing directly in stock market you can choose Mutual Funds or Index funds because you may not know when you need the money.
How long you have been in Stock market:
Actually this will be inversely proportional to your age, If you recently started investing then go with low risk or if you are having enough time in market and you know how to risk proof your portfolio you can go on high risk.
knowledge to understand about know before taking any position..
Everyday we might hear many stock names, some times we just go blindly invest based on tips then go with low risk, invest in the company which is stable, But if you can do your own research and you can understand how company is performing financially and how price is moving technically you can go on high risk.
Financial Planning :
If you have done enough financial planning like taking Term Insurance and kept the Emergency fund aside you can go on high risk because even though there is some fall in market you might not sell it immediately, but if you haven’t done those first plan these thing then only spare the excess money in stock market, never invest your emergency money into stock market.
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