Broadly speaking, there are two kinds of Investors –Aggressive and Defensive. Aggressive investors are those who are willing to take more risk for more profit, thereby putting their investment at higher risk. Whereas defensive investors are those who are more interested in avoiding any losses on their initial investment. They want to play safe. They are happy with minimum returns.
Investment and gambling are two different things. In investment, you take a calculated risk and do the proper research before investing. In gambling, you leave everything on your luck and wild guess.
So, even if you are an aggressive investor, do proper research before trying to make more profit. Do not just invest blindly on someone advice. Instead of making higher profit you may end up losing all your money. Do not invest on someone’s recommendations or past performance of any share or mutual fund. Past performance does not guaranty future returns.
We all know one universal principle of investing: More risk, more profit. Conversely, it also means that chances of making profit decreases as profit increases. If chances of making profit decrease too much, it becomes gambling rather than investing. In gambling most of people lose money. Similarly, investing with high risk can make you lose your whole money.
Seldom people told stories of peoples making lot of money in very short span of time from stock market. However, there are many more cases where people lost all of their hard earned money. Thus, do not let other’s success stories blind your eyes.
What is the purpose of investing? To make money, right? If instead of making money, you start losing money, there is no benefit of investing. Better, keep your money safe in bank account or in liquid funds. So, by default everyone must be a defensive investor.
If you have some extra money which you do not need for several years, you can invest it in stock market as an aggressive invertor. For high risk and high return, invest in small cap funds or small cap stocks.
For retail investors and first time investors, defensive investing is the best. Diversify your portfolio and invest in different sectors and different schemes. Be happy with 10 to 15% annual profit on your investment in stock market and mutual funds because no other scheme will give you better returns. It has been observed that in long term (five to seven years), stock market gives good return. As per your risk appetite, mix your investment in debt and equity.
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Disclaimer: Mutual Fund/ stock market investments are subject to market risk. Please read the offer document carefully before investing’