Tips for Safe Investments..

The biggest risk in life is not taking one.' According to me, 'The biggest risk in life is taking one but believing you have not taken any' or 'taking one but not understanding the consequences of your decision.'

Too often we focus on the wrong set of parameters such as oil prices, stock prices, interest rates when it comes to making equity investments. People spend countless hours watching business channels, reading magazines for hot tips, tracking the 'unknowns' but there is hardly any time spent on the 'knowns', which is solely in your control.

Here are some of the UNKNOWNS that we so often focus on and the KNOWNS that we ignore most of the time.

UNKNOWNS (This is NOT in anyone's control)

Sensex and Nifty behavior
Stock prices
Oil prices
Interest rates
Inflation
Tax laws and regulations
Geo-political risks

KNOWNS (This surely is in your control)

My needs and goals
What is my time horizon?
What is it I want to achieve in life?
How do I react to different things including stock market ups and downs?

In fact when it comes to investing, to be a winner, one must make as fewer costly mistakes as possible. A lot of people like to believe that they are better-blessed souls of our century who do not make mistakes.

There is no one in the world of investing who has not made a mistake. The key point is to understand how to avoid costly mistakes. Getting back to my point, understanding and managing risks are the most important part of the investing process.

Take too much risk and you might jeopardise your financial future with huge losses. Take too little and you jeopardise your financial future with low returns barely enough to cover your lifestyle expenses.

So how do you determine how much risks you should take and are you taking enough?

First determine what returns you reasonably need to achieve your financial goals (assuming that you know what your goals are). So if you need a 10 per cent return, why should you opt for some exotic thing like a derivative or trade like a maniac!

Second step is to figure out whether you are getting those returns consistently. Knowing your benchmark can help you a take more risk than necessary.

Now how do you figure you are taking too much risks. Three simple questions might help.

Have I lost sleep during the May crash or in general after making the investments?

Do I feel pressurized to watch stock prices, fund NAVs weekly or daily?

Do the UNKNOWNs given above worry me about my financial future?

If you have answered yes to either of the above three questions, you have taken more risk than you can digest.

If you answered yes to all the above, then like the kiddy line "it's time to put your toys away" - it is time to put some of your stocks/equity funds away. As F Scott Fitzgerald said, "If you don't know who you are, the stock market can be an expensive place to find out".

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