Many people in India are afraid of investing in the securities market. This fear stems primarily from the risk that the market carries, as well as a lack of knowledge about how to manage that risk. However, as the famous investing Guru Benjamin Graham, the father of value investing, once said: "Successful investing is about managing risk, not avoiding it." These words hold true even today, and they serve as a reminder that with the right knowledge and approach, investing in the securities market can be a rewarding endeavour.
Investments of any kind are subject to various risks. While an investor cannot completely do away with the risks, one can manage them in a manner to reduce the negative impact of those risks on one’s investment portfolio.
First and foremost, do thorough research about the investment and understand the risks. There is no substitute for that. If one is unable to do the research oneself, it would be prudent to seek professional help
The second step would be to diversify across different assets class. The key word here is "different". Diversification may be done across assets classes:
Even within an asset category, it is important to diversify. With the securities market you can diversify i.e.
Investing in high-quality and diversified assets can help protect your portfolio from most risks. However, there are some risks that cannot be diversified, such as market wide price volatility. When the entire market goes down, the individual securities within the market will also see their prices go down.
The negative impact of such a risk may be avoided by matching the type of investment with your investment horizon. For short-term investments, you should avoid risky investments like equity markets. For long-term investments, you should invest in securities that have the potential to beat inflation. And if you need the money in the near future, you should avoid volatile or illiquid investments.
In other words, you should choose investments that are appropriate for your time horizon and risk tolerance. This will help you avoid losing money and achieve your financial goals.