Investment Shastra

How does your Current Source of Income Affect your Risk Ability?

Risk Ability or the answer to ‘Can I afford to take risks?’, is the capacity to bear risk or sustain losses without a significant impact on your lifestyle. 

And, your source of income has a major influence on your ability to take risk. It is largely inversely related.

If you have a steady job or income possibility, you are taking a lower risk in earning income. And, if you have a long career ahead, you have a high ability to take risk. However, you may be a risk-averse person, and your willingness to take risk maybe lower than your ability to take risk. A good Fiduciary Advisor (who has no conflict of interest and act in the best interest of clients), can help you address this challenge and earn higher returns.

In contrast, if you are a businessman, then you may be taking a higher risk in earning your current income. You cannot afford to expose your investment also to high risk, and hence, your risk ability for investing your surplus is low. It is a myth that people who are risk takers in business are risk takers in investments too. Since, they often take large risks in business; they prefer to invest in safe asset classes, with low to moderate risk.

Read Also: How are your Risk Profile and the current portfolio size linked?

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