What do you do about Risk ...????

Definers, if I can address them that way, define risk as a condition in which there is a possibility of an adverse deviation from a desired outcome that is expected or hoped for.

Risk is present everywhere and at times. It can take many forms and can if translated in to reality can lead to devastating consequences which would never want. There is risk while leaving commuting, while investing in a business, while building a new project, even while cooking at home etc....

So, what is that we can do about Risk?

The following are the ways in which we could deal with Risk

Avoiding Risk

The best option to avoid the consequences of a risk is to avoid the risk altogether. For example, if there is a risk of injury in travelling by train, then by avoiding travelling by train would avoid the risk altogether. However, many a times avoiding risk is not practical as certain actions need to be performed in spite of risk being present.

Controlling Risk

This may prove better than the earlier method. By controlling risk, we can take steps to prevent or reduce the losses. For example, if there is a risk of fire in a shop, then the shopkeeper may install smoke detector and water sprinklers. However, controlling risk can neither undo the damage nor complete avoid the consequences.

Accepting Risk

By this we can accept or retain the loss due the risk and not take steps to either avoid or prevent it. However, such a method should and is only logical for risk whose consequences are not large. For example, we may accept the risk and not take any measures against theft of an inexpensive wristwatch.

Transferring Risk

A more financially prudent method to deal with risk is to transfer the risk. When you transfer risk to another person, you are shifting the financial responsibility for that risk to the other party. This can be achieved through insurance coverage.

Various risks can be covered by insurance which are broadly divided into property damage, liability and personal risk.

Importance of insurance arises from the fact that certain of the insurance covers have the capacity to put the insured back into the same financial status as the insured was before the happening of an unwanted event.

Read more about various kinds of Insurance Covers that exist and how you can enjoy a carefree life - Click Here

Commodity Exchange – a great place to buy Gold for Long Term

Gold has been bound between 26,000 & 27,000 on the exchange since quite some time. Now, to understand the investment in the commodity exchange and the benefit it brings, let’s assume that the gold is at 27,000 at this point in time.

Considering either a short or a long horizon, there are only 3 possibilities that can arise at any point

1. Gold shall remain at current levels even in future
2. Gold shall go northwards in future
3. Gold shall go southwards in future

It is all a game of probabilities since, we cannot predict future. So we shall always feel the probability of Gold going up with less confidence in the short term then in the long term.

In the very long term we would safely assume with more that 99% confidence that gold will be more than what it is today. Hence, let’s assume a conservative scenario whereby, we expect gold to reach 28,000 by the end of one year from now. Gold may see highs of above 28,000 and even see lows within this year.

Now, if today we purchase 100gm of gold, the investment required shall be Rs. 2,70,000/-. When at the end of a year, as per our assumption, the price would have reached 28,000. Hence, we would have made Rs. 10,000/- on our investment of Rs. 2,70,000/- . Hence we had an ROI (return on Investment) as under

ROI = 10,000 / 2,70,000 x 100 = 3.70%

Now, let’s compare the situation with investing in Commodity Exchange.

In the commodity exchange, you need to invest only Rs. 25,000 (approx) as margin money to block 100gm of Gold. However, the profit / loss made on the investment are marked to market on real time basis. Hence your account is continuous credited / debited depending upon price movement.

However, let’s assume that we roll on the investment in 100gm of Gold in the commodity exchange for a year. At the end of the year when the market price is 28,000, our account shall be credited with a nett 10,000 as profit. Hence, in this case also the profit remains the same i.e. Rs. 10,000/-. However, this profit is now achieved on an investment of Rs. 25,000/-

This time the ROI is as under

ROI = 10,000 / 25,000 x 100 = 40.00%

Thus ROI through investment in commodity market is over 10 times in percentage terms with that of investing in physical gold / gold ETF or for that manner any other means of investing in gold as no front offers the commodity at such less margin money.

Now imagine the money that can be made in absolute terms when the entire 2,70,000 can get invested in the commodity market.

Interested in Investing in the Commodity Exchange - Click Here

Real Estate - Short Term and Long Term Investment

Real Estate is a legal term related to a land or all the fixtures of land including building and other improvement. Real Estate is often called a real property, sometime called Realty. There are different types of Real Estates i.e. Real Estate Marketing, Real Estate Investing, Corporate Real Estate, Residential Real Estate and Commercial Real Estate.

Investments in Real Estate can happen in two ways as under

Short Term Real Estate Investment

Short Term investors are looking at great profits in this rapidly appreciating market. Short term real estate investment means buying a property and selling it in a short period of time. The wait for profit potential is very short when compared to any other investments today.

But there are some risks involved in this short term real estate investment for which the investor has to be prepared in advance. There are some situations where the investor has to invest more than his budget; more money is needed for repairs and so on. Short term investors should follow the below steps for a fruitful result:

1. Check whether the Real estate property values are increasing every day.
2. Complete the repairs and connections as early as possible but at a reasonable price within your boundaries.
3. Check whether the finances and taxes are able to withstand possible negative feedback.

The view of short term real estate investment is to make quick profit without holding the property for a long time. It is also required to act quickly during the renovation stage. Hence, proper research and knowledge is required. You may contact the local governments, housing authorities, investment groups, other investors and other resources for gaining a proper knowledge.

Long term Real Estate Investment:

Long term real estate investment provides a great option for possessing high returns. Long term real estate investment requires much more effort and commitment for maintenance than a short term investment. You have to purchase a property in the specific area where long term appreciation rate appears favorable and then act as a landlord by giving the property on a rent. You have to perform all the maintenance issues that are required by a real property. The following factors should be considered in order to obtain a successful long term investment:

1. Ability to deal with renters or tenants.
2. Investigation for the possibilities for the tax break.
3. Long term appreciation of the property should be positive.
4. Avoiding tendency to sell the property on profit immediately.

A clever long term real estate investor performs strict maintenance schedules by keep a readily accessible list of concerned professionals to perform the repairs immediately, with an aim to satisfy the tenants. Choosing the potential tenants by avoiding irresponsible and unreliable tenants is a key factor while going for long term investments. Long term real estate investment involves several risks but a smart investor will be able to minimize them at the beginning of the investment. You need to keep some capital on hand in order to maintain the repairs when the property is vacant and when the appreciation is declined.

For a fruitful long term real estate investment, one should keep track of the market scenario and try to maintain relations with the local real estate industries as appraisers, brokers, attorney’s and other investors.