Anupam- The Dreamer

Taking calculated risks for a better future

There was a time when the “Fixed Deposit” was considered as the best investment instrument for the future. That was in our grandparents’ and to a large extent in our parents’ generation. And they were not wrong in any way! Because in their generation, the essential issue was of survival and ensuring basic necessities of life for the family like food, water, clothes, education, healthcare, housing etc. Also, the income levels were low, so they didn’t have much savings, and hence the risk-appetite was low. So, FD was the best instrument for them to rely upon, with fixed and assured returns (about 5-6%) that would help them to navigate the challenges of life smoothly. But more than just being an investment tool, I would call it living a “FD-kind of life”, with no risks, no fun and no big returns for their hardwork in the future. It was a life of mediocrity, but given the difficult circumstances at that time, it was completely justified.

Now, with the economic progress of the nation and the world at large, we are no longer (talking about the middle class and upper class) living at the level of basic necessities of life. We have already surpassed that level. We don’t have to face the “struggles” that our previous generations had to face. So, now living in the same mentality of “FD-kind of life” would not take us any higher in life. We would be stuck where we are. Therefore, we need to take some calculated risks to jump to a higher level of living. And what would that risk be? Well, it depends on your risk-appetite and your mindset at the same time. I would dwell upon them, one by one.

Above, the “FD-kind of life” comes the “Mutual Fund-kind of life”. In this type, your risk appetite becomes a lit bit higher. As in the Mutual Fund investment, you take a lit bit more risk in the hope of getting better returns than FD (like maybe 11-15%). In this mindset, you shed your inhibitions a little bit and try to take some risks, not just in financial aspect but other aspects of life as well. For example, you might consider switching jobs for a better hike. There is always a risk to leave your comfort job (as in FD) and switch to an unknown territory, but nevertheless if you have some risk-taking appetite, then it wouldn’t be a big deal, because you know that in case it doesn’t work then you can always fall back upon the “FD-kind of life”.

Then, comes the “Equity-kind of life”. Now, the risk-appetite goes much higher. As in the equity markets, you here take big risks in the hope of getting big rewards than even MF (like maybe 15-30%). In this mindset, you are ready to jump in the unchartered waters by taking calculated risks. This happens when you have more confidence in your own abilities and you know that you deserve better rewards than even “Mutual Fund-kind of life”. Here, you have come out of your inhibitions and set your target on achieving a quantum jump in every sphere of life. You take risks, which friends and relatives around you, would not be usually willing to take. They will even caution you to avoid such risks in life, because they themselves are stuck in the “FD-kind of life” and “Mutual Fund-kind of life”. But, if you want to achieve some bigger goals and higher growth, then the associated risks have to be definitely a notch higher.

Till the “Equity-kind of life”, there are “calculated risks” that I would normally suggest. There is some calculation that goes into the risk process, it maybe difficult to understand, but still there is something rational, logical and reliable. But, some people breach that threshold and venture into the unlimited risks domain.

This level maybe called the “Futures & Options-kind of life”. Like the F&O investment, this kind of risk taking is like- you win all or lose all! Either you will become a millionaire or you will become a bankrupt! This kind of life is suitable for those, who love to live on the edge, with nothing to lose in life. For example, people who are playing with their lives have nothing more to lose. Similar is the case with this kind of mindset. At times, this mindset bears some astonishing results. For example, the entrepreneurs like Elon Musk, who started SpaceX belong to this group, because nobody knew whether they would actually become the first private sector company to be able to build a rocket on their own! But, they did! So, it was a win-all situation, which helped to make Elon Musk the richest person on the planet. If he would have failed, then he would have lost everything whatever he invested in his venture.

So, it all depends on your risk-appetite which kind of life you want to live: FD, Mutual Fund, Equity or F&O. And mind you, I am talking not just about economics, but about a mindset and a lifestyle…. 😉

Till next time….