Risk

The term RISK, has been read, heard and talked about almost every day in various aspects of life. Here, we refer to Risk associated with money.

Financial Experts have dissected risks into many forms including Business Risk, Financial Risk, Market Risk, Re-investment Risk, Interest Rate Risk, Liquidity Risk, Exchange Rate Risk, Information Risk, Political Risk, Management Risk etc. Many more terms will be added to the list as more investment areas get created.

Most of there Risks come into play when money is deployed into some Financial Avenue. However, the more pressing Risk we feel arising in India today is OPPORTUNITY RISK & PURCHASING POWER RISK

OPPORTUNITY RISK is the possibility of missing an opportunity that would have yielded better returns. Simply put, the loss of chance where you could have made more money.

PURCHASING POWER RISK is the impact of Inflation or Deflation on Investment

Why do we think these Risks have gained center stage?

India is seeing a high rate of Inflation. The Ministry of Statistics in India shows CPI (Comsumer Price Index) increased by 14.1% in June 2010 vis-a-vis June 2009. The consumer price Index measures the change is price levels of consumer goods and services purchased by households this includes Food, beverages, fuel, light, housing, cloth, bedding, footwear and other miscellaneous items.

This means (in relation to CPI) that if you did not earn 14.1% more in June 2010 as compared to June 2009, then you would be able to buy lesser consumer goods and services this year than the previous year.

What does this tell you?

In relation to your savings and investments, if they are not growing by 14.1% then your savings and investments made in 2009 can buy lesser consumers goods and services today then what they could in last year.

In order words the savings and investments have reduced in real terms. This is PURCHASING POWER RISK

So where dose OPPORTUNITY RISK come in?

Even in such a fragile economy, the Financial Markets in India are offering many OPPORTUNITIES where monetary gain is possible at rates of Inflation at these levels and even more.

Although being conservative and parking all the money in safe instruments has never been a bad idea, but today unlike in the past, there are more opportunities available. Conservatism should be reconsidered in light of the following facts

1. A conservative investment is depleting wealth

2. Mature markets and a host of Financial Avenues are available to choose from

3. Advanced technology and experts available for guidance

In other words, it is time to explore other avenues of Investments and downplay conservatism as PURCHASING POWER & OPPORTUNITY RISK may turn out to be bigger riskS than all other risks put together.