How should first time investors manage investment risk?:Balance risk and security in portfolio

In the world of investing, the statement of stock market veteran investor Warren Buffett “Rule number one: Do not lose money. Rule number two: Do not forget rule number one” is as important as it is simple. People often focus only on returns when they start investing. But they do not consider what will happen if the market does not perform as expected. This is where the need for risk management begins. The right strategy does not just grow an investment; it also protects it from ‘major shocks’. Every investor has a different age, income, set of responsibilities and financial goals. Therefore, the same investment strategy does not work for everyone. A young investor’s ability to take risks may differ from that of a retired person. In such a situation, risk management helps tailor investments to an individual’s needs and capacity. That is why today, we will discuss risk management. We will also learn that- Expert-Kushagra Mohan, Financial Expert, Co-founder, Nixepa Capital, Lucknow Question-What is risk management, and why is it necessary in investing? Answer-Risk management means planning in advance and adopting the right strategy to minimise potential losses in investments. Its objective is to control risk according to one’s capacity and goals. See in the graphic why risk management is necessary in investing- Question-What are the essential risk management rules for new investors? Answer-The most important rules for new investors are diversification, regular investing and discipline. Adopting proper risk management reduces the possibility of losses and delivers better financial results over the long term. Here are the 10 rules of risk management in the graphic- Question- What is the difference between risk-taking capacity and risk tolerance? Answer- Understand the difference between the two through these points: Risk-taking capacity Risk tolerance Question – What should be done for risk management? Answer – The aim of risk management is not merely to protect yourself from losses. It also involves creating an investment structure that ensures your financial goals do not get derailed by any market condition. To do this, take the following steps – Question: What should be the maximum level of risk-taking for young investors? Answer: There are several popular rules for this in financial planning, but you can modify them according to your needs. These rules do not necessarily have to be followed exactly as they are. The rules are: 1. 100 minus age rule Example: If you are 25 years old, 100 – 25 = 75. This means you should invest 75% of your investment in equities and 25% in debt, FDs, PPF or bonds. 2. The 110 or 120 Minus Age Rule If you are young, have a long investment horizon and can take on greater risk, you can determine the equity allocation by subtracting your age from 110 or 120 instead of 100. Example: If you are 25 years old, 120 – 25 = 95. This means 95% of the investment can be allocated to equities and 5% to debt or other relatively safer investments. 3. Core-Satellite Strategy Example: If you have ₹10 lakh to invest, you can put ₹8 lakh in index or large-cap funds and ₹2 lakh in mid-cap, small-cap or other high-growth investments. Question: What should women keep in mind when managing investment risk? Answer: Risk management is essential for everyone when investing. However, women should pay attention to a few specific points. See the graphic- Question- How can senior citizens balance risk and security in their portfolios? Answer- After retirement, the aim of investing is not just to earn higher returns, but also to generate regular income and protect capital. Keep these points in mind- Question: What changes should be made to the portfolio five to 10 years before retirement? Answer- If you are close to retirement, make your investment strategy balanced and secure. The following changes can be made during this period- Question: How should the strategies of investors with small, medium-sized and large portfolios differ? Answer: As the size of a portfolio grows, investment priorities and risk-management strategies should also change. The same strategy is not right for every investor. Investors with small portfolios Investors with medium-sized portfolios Investors with large portfolios Question- Which checklist should be followed before investing in the market? Answer- It is important to keep a few things in mind. See the graphic- Question- What should investors do if they suffer any kind of loss? Answer- Understand this through the following pointers-

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