Recently a friend of mine was boasting that he made 20 to 40% in the stock market. Investment decisions tend to be guided by the returns they make and generally people end up ignoring the β (the risk). Greater the returns, greater will be the risk of booking losses. So what should I do? Should I not take any risk at all? Taking risk is absolutely necessary! But more important is to spread out your investments among various instruments to manage your risks. Consider your investment portfolio like a well balanced boat.
It has a hull, sail and also life jacket. Equity investments are like sail of the boat…it gives speed! to the portfolio. Low risk or capital protection plans are like the hull of the boat…it brings stability to the portfolio. Life and health insurance are the Life jackets of your portfolio.
In the hull (stability) part of your portfolio, there are options that give guaranteed tax free returns of 5 to 6.5% over long period of time.
This protects us from falling interest rates
Guarantees stable income over long period (20 to 30 years)
Better returns for those paying income tax
Compare this to bank FD’s with fixed interest for 3 years, declining rates during renewals, and poor after tax returns.
Equity (Sail) is important…but so is the Hull (Stability).
How is the Hull part of your investments?
Lazarus Dias, MBA Finance, CIS, CPFA, RFC, CLC, MSLC
Trainer, author of 4 books www.freedomfactory.in
augustine.mendez@freedomfactory.in
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