Your Financial Stability

Everyone is interested to know the financial well-being. Financial well-being is nothing but a mindset of financial analysis. Three types of risks are covered under financial well-being. These are Protection Risk, Investment Risk, and Return Risk. 

As an experienced person, my theory says that you should keep your portfolio in protection because the risk is 15 times the Annual Income. That is called safety and security risks. Suppose, the Annual Income is Rs.10 lacs. Your protection risks must be 1.5 crores. Therefore, you may take the option of Life Insurance, Health Insurance, Building Insurance, Car Insurance, etc under this category. The 2nd is investment Risk, which is otherwise called Growth and stability Risk. As you know, human wants are unlimited but you have to satisfy with your limited sources. Exposure to inflation, underestimating the future requirement, and too many products making investing decisions difficult are the main causes of risks. The 3rd one is Wealth creation and investment. Money is invested like a pyramid. We spend on real estate, fixed deposits, Gold, Equity Mutual Funds, and Equity Stock but the return pyramids are based on Fixed deposits, Gold, Real Estate, Equity Mutual Funds, Equity Savings etc.

Investment in Equity is two types. One is Passive Investing and the other is Active Investing. As a young and premature new investor, you are investing in passive investing by watching the flow of Fifty or senses, but Active Interesting is good, which is in stock.

There are two types of risk you face in investing. One is Event Linked Risk and the other is Asset Linked Risk. Event-linked Risks are volatile. The Covid pandemic and the War between Gulf countries or Russia and Ukraine which is beyond the control may be natural or gio political. The other phenomenon is Asset like risks, though it is volatile due to Liquid stock and Risk of Non-performance or underperformance.

You may face the wrong approach to investing. The investment is always for the long term. Do not have faith in uneducated social media. They will blame you and do not know the investment. Indexing and speculative view etc.

You have to prepare a basket for the investment. you keep 60% in a Large Cap of 15 stocks or less, 20% in a Middle cap of 10 stocks or less, and 20% in small and micro caps of 10 stocks or less. What is a balanced basket for you?

Please note that Nifty which is 18K in 2023 will be 62K in 2030. This is a crucial period. You might not hear of the operation black swam techniques, which will create a great recession in the economy. Though our Finance Minister firmly avoids this situation, in some countries due to the lack of foresight of their Governments the back swan captured their economic conditions.  

In these circumstances, you should invest in SIP. I am telling the Mutual funds Systematic Investment Plan like Recurring Deposits of the Bank, Saving Investment, and Protection of the fund. So, your allocation must be 40% in wealth creation, 40% in investment, and 20% in the protection risks basket. However, it depends upon your discretion and needs on how to invest.

Be Happy - Lead Your Life financially healthy.