There is always a catch. When

There is always a catch. When it comes to investing the catch isrisk. In an earlier week we talked about borrowing money as a leapof faith. The lender expects you to repay the loan – but they can’tknow for sure. They can “secure” their loan against what youborrowed for – the car or the house. For the lender, there is therisk though that they don’t get the full value back. If you investin shares – you are the last one to get paid. Everybody else getspaid before the shareholder. So they take a big leap of faith! Sodebt (bonds, fixed interest securities) is lower risk than shares -but lower returns as well. That’s the catch. If you expect highreturns you are going to have to stomach higher risk – the rollercoaster of returns is steeper. So how much risk can you tolerate?The text emphasizes that when you are investing you need toconsider the risk of your human capital. How risky do you consideryour human capital? Is you human capital higher/lower than theaverage? Why ?

Answer:

I consider my human capital to berisky but the risk element is not very high. My human capital riskis lower than the average. This is because the main risk associatedwith my human capital is death risk and disability risk. Besidesthese two there is the professional competency risk.

The reason why I consider my humancapital risk to be lower than average is that I have well protectedand amply protected my human capital with life insurance policiesas well as disability insurance policies. So even in case of acareer-halting illness or an untimely death the human capitalshortfall will amply be filled by the insurance pay-out. I havealso done asset allocation in my portfolio in such a manner thatwhen required the portfolio can be liquidated. I have alsoconsidered and factored in professional competency risk and beingan accounting professional I constantly upgrade my skill sets withthe latest development in my profession. In terms of tangible valueI consider my human capital to be neither higher nor lower than theaverage. I am an accounting professional and hence my level ofhuman capital is at par with other accounting professionals whohave the same skill sets, same educational qualifications and sametype of work experience as me.


 
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