Understand your risk appetite

In a soccer game, it is easy to determine which team is playing defensive, sometimes defense is the best offense. In a baseball match, you need to bat in order to win. I will say you need to take some risk in order when you are taking the offense role. 

1. Risk
As mentioned in previous post, the death rate taking a plane is one in millions, death rate by driving a car is 1 in 500,000. However, there are billions of people taking planes and driving every year. Risk is everywhere. Similarly, investment involves risk taking as well. Higher risk usually equate higher gains.

2. Sampling
With regards to risk in investing, Black Rock conducted a study in 2013 in 12 countries over 17,000 participants.

a) Investment Objective : Retirement
35% of the participants are investing for retirement purpose. The participants do not believe in relying on government funding and support for retirement purpose. They feel that they can only depend on themselves for retirement.

b) Ability to bear losses
35% of the participants are willing to bear 5% and below losses. 17% of the participants do not wish to bear any losses at all. More than half are conservative, most of the people are keeping bulk of their asset in cash and putting them in fixed deposit.

c) Saving rate
The average saving rate is 18%.

d) Investment Tools
40% will want a guarantee return. 34% will want their principal to be guarantee/protected. 20% want their investment products to be easily understand.

e) Control
34% want to be actively participated in their investment and they will review their investment on a timely basis.

You need to know your own risk level, whether you want active or passive participation in investment. How much are you willing to lose in the event you are wrong? As emphasize, you need to have high saving rate and have resources allocated for investment. It is important to understand your investment products, do not invest in products which you do not understand. I will suggest to review your investment on a yearly basis with your advisor.

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