The problem with risk is it is generally not visible. In most cases we wish to avoid it by PRETENDING that it is not there, or ignoring our inner voice which keeps telling us that there is risk. The worst thing is Risk is counter intuitive.

Let me explain.

In 2007 end and perhaps the beginning of 2008, NOBODY thought that the equity markets are risky. It looked like 21000 will soon cross 25000 and then 30000.

Unfortunately that did not happen and the market came down – to about half of its recent high.

Similarly in 2002-3 debt market instruments were giving good returns and people were hoping to get a 19% pa return in debt funds. Of course neither good returns in debt market continued nor did the equity market remain in the doldrums PERMANENTLY.

Today’s situation is again somewhat like 2002-3. Equity markets have not given a good return for the past 4 years, debt funds are giving decent returns, and the small investor is being wooed to the debt funds. Very good news (turning money from the banking industry to the mf industry is also good news for the government – the NPA risk has just shifted from the govt to the individual!!)   

So what to do now? Well that is a question you need to answer yourself…