25 Dec Risk
The word risk strikes fear right at the centre of the heart. It casts a very eery spell upon your conscience.
Many Investors have been bitten by this bug; the bug called risk, the bug that instills fear in the heart and loss in the mind.
Many Investors have lost out the opportunity called ‘investing’ because of misplaced and unfounded fear.
Many a wealth has dissipated into nothingness due to this strange word called risk.
While we may mean ‘risk’ to be equal to volatility or uncertainty, the Investor often paints a picture of wealth destruction or smashing wealth into smittens.
If only one could communicate this one word accurately a market would spring up from nowhere.
How does then one do this?
Let’s make an attempt.
Let’s say my client is sitting in front of me and wondering whether he should invest in all equity fund or in a mid cap one or a balanced fund.
I know his age and according to his age which is 30, he should be investing 70% in equity.
But what if he is a big risk taker?
Then he can perhaps go all equity or even mid cap.
Knowing his risk profile is very important because investing is more about managing behaviour than managing money.
How do I ascertain this very elusive trait called risk profile.
So I try out a method which according to me is different and innovative.
I give the investor two options.
One is to take a flight from Mumbai to London in an aircraft that takes him to his destination faster by 2 hours (around 20% of the 10 hours time) but the flight due to higher speed would be experience severe turbulence.
The other option is to take a flight that takes the entire time available to it of 10 hours but provides a very smooth flight experience bereft of any turbulence.
If my client chooses the second option I would recommend a diversified multi cap fund or perhaps a balanced fund..
And if he were to choose the turbulent flight to save the 2 hours I would have counted him as a mid cap investor.
Thus by providing the investor situations which he can associate with quite easily, one gets a sense of his risk profile.
Try out this tool when you meet a new customer whose risk profile you wish to ascertain.
You may experience a pleasant surprise and realise that this method of risk profiling through creative engagement not only engages the customer better that gets him to make the interaction friendly and memorable but also brings in more business.