Kavan Choksi Japan Speaks on How Much Should You Invest in Equities

NA How and Why to Invest in Mutual Funds 884x584 1

When it comes to the investment in equities, the question that comes to your mind is, how much should you invest? In such a case, it is prudent for you to take into account several factors and consult a skilled professional in the field, especially if you are new to the field of equity allocation.

Age had played an instrumental role in the past when it came to the allocation of equity for investments. For instance, the widely used 100-age rule implies the asset percentage allocated to the equities you should invest in. According to the above rule, people can calculate the equity allocation by subtracting their age from 100.

According to Kavan Choksi Japan, a business expert with valuable knowledge in finance and equities, the above rule is based on the fundamental assumption that your ability and willingness to absorb risks reduce when you get older, so the exposure to equity should also reduce. However, he does not agree with relying on the above assumption alone when it comes to equity allocation for your investments.

Several financial advisers and managers recommend people should reduce their exposure to equity as they grow older. However, he has an alternate. In his opinion, the most significant thing for you to understand is the other factors that impact your equity allocation, and it is best for you to take them into account when you wish to know the amount of money you should invest. it is prudent for you to take into account several factors and consult a skilled professional in the field, especially if you are new to the field of equity allocation.

Risk profiling and its importance  

 As a private investor, you have a unique risk profile. This reflects your ability and willingness to take specific risks when it comes to investments. Again, this is a psychological factor as it denotes your readiness and comfort levels for taking risks. The ability for you to take risks is quantifiable as it depends upon your assets, liabilities, and future income. This means someone with a vast amount of asset or investment base with a small amount of liabilities is able to withstand risks better than someone with lesser investments.

A critical step in the process of financial planning

According to him, risk profiling is the first step you should take for financial planning. It is critical to determine the amount of risk you are ready and willing to take for the investment.

Be aware of your goals and commitment

In his opinion, your objectives for investment and your levels of commitment with your investment period are important for determining the amount you should invest. You should assume that a majority of your objectives are long-term, and they will start to surface after five years. For example, if you have several plans for investing in the next five years, then, in this case, a significant equity allocation is not appropriate, irrespective of your risk and age profile.

In the above case, Kavan Choksi Japan is of the belief that a significant allocation of equities is a wise choice, but it should be consistent with your total risk profile.

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