By: Adrian Khiat I have mentioned in my previous postings that Singaporeans are living in an environment of gambling and speculuations. They are not living in an environment of guided Investment. Human by nature are risk averse and greedy at the same time. They overestimate returns and underestimate risk when they are greedy. They underestimate returns and overestimate risk when they are risk averse. How they preceive greed and aversity depends on the investment climate. Greedy when market is up. Risk Averse when market is down. (Though should be the other way round as Warren Buffet advised) Today, I like to write about 3 principles for you to ponder about if you like to invest: 1) Is it necessary to take risk? a) What is your returns required to meet your objective? b) If 4% yearly returns are required, why should you be greedy and go for 8% which translate to unnecessary risk? 2) Do you have the ability to take risk? a) What is your time horizon? When you need this money? b) Do you need the liquidity? Is your cashflow regular? c) What is your age and are you in good health? 3) What is your willingness to take risk? a) You can use a risk profiler to understand how you preceive risk b) Some people simply cannot sleep well when the market comes down. Everyone is different in this aspect. As a Financial Planner, we need to guide our clients through the process on how much risk they "need" to take. We should not be guided on how much risk they "want" to take. Read more...