In the recent years 2018 & 2019, we have seen fatal air accidents involving Boeing 737 and as per the past records of the aviation industry, there were many accidents in the past so many years involving Boeing 737.
The Boeing 737 series is the best-selling commercial jetliner in history, with the first unit having first entered airline service in February 1968 and the 10,000th unit entering service in March 2018.
- The first accident involving a 737 was on July 19, 1970, when a 737-200 was damaged beyond repair during an aborted take-off, with no fatalities;
- the first fatal accident occurred on December 8, 1972, when United Airlines Flight 553 crashed while attempting to land, with 45 (43 onboard plus 2 on the ground) fatalities;
- and, as of May 2019, the largest loss of life was an accident on October 29, 2018, when Lion Air Flight 610, a 737 MAX 8, crashed into the Java Sea shortly after take-off, with 189 fatalities.
- The most recent crash was on March 10, 2019, when Ethiopian Airlines Flight 302, another 737 MAX 8, also crashed shortly after take-off, prompting a worldwide grounding of all 737 MAX aircraft.
On getting to know such news of accidents, immediately, what comes to our mind is fear for air travel. Despite the fear, we all continue to do air travel. Aren’t we? The reason is we do not have alternative time effective travel options. While we understand the risk involved in air travel, we still use this mode of transport.
Similarly, the real estate industry has its own share of false promises, undelivered projects, disappeared builders, scams, etc. There has been the innumerable number of frauds/scams that have been happing in this industry and many innocent home buyers have lost lots of money. Despite knowing that there are many grey areas in real estate industry, most of us still prefer real estate as one of the preferred and safest investments for the long term. We continue to invest in it, knowing the risk.
In both above examples, because of the failure/frauds, the regulators of the respective industries have brought in risk-mitigating rules/regulations. These changes will eventually help us in lowering our risk. Grounding boeing 737 is one such change, Bringing in RERA in Real Estate is another measure.
The reason of highlighting these two industry’s challenges/risks here in this article is to give you an analogy and help you know and accept risks involved in your wealth creation journey & how to mitigate them.
Coming to wealth creation journey, as I always mention, asset allocation is the key at any point in time.
Before I reiterate the importance of asset allocation, let me highlight the recent fiascos happened in the financial industry. You may have been hearing/reading about them and wondering are Mutual funds safe to invest? Should I stick to my traditional way of Fixed deposits and/or Insurance policies?
1 ) Infrastructure Leasing & Financial Services (IL&FS), an unlisted infrastructure lending giant with over 150 subsidiaries, has been making headlines for all the wrong reasons. The company’s debt was downgraded over the past few weeks for default of interest to its bondholders.
2) DHFL slumped after a news portal reported at the end of January that it gave loans amounting to Rs.31,000 crore to “dubious” entities linked to the promoters, who were said to be the ultimate beneficiaries. Reports of a probe by the ministry of corporate affairs added to the pressure.
The company has faced a liquidity crunch since the second quarter of the last financial year and has been trying to raise finances to keep afloat.
3) Jet Airways, once was a top-notch running airline in India, today fighting for its existence.
4)Then there are few more fiascos that have happened in the past like Zee, Essar, Nirav Modi, etc.
5) In the past, there were so many bubbles happened in different economies.
- The Tulip Mania – Year 1637
- The South Sea Bubble – Year 1720
- The UK Rail Road Mania – Year 1850
- The Great Depression – Year 1929
- The Nifty Fifty Era, US – Year 1973
- The Nikkei Bubble – Year 1989
- The Dot Com Bubble – Year 2000
- The US Housing Bubble – Year 2008
- India’s Bull Markets – Year 1992, Year 2000 & Year 2007
- The current scenario – Year 2008 -2018
All these events indicate that your investments which are either in these direct stocks or in mutual funds, will have / would have impacted. So, now what do we do? Should we entirely stay away from these financial instruments?
The answer to this is No. We should not entirely stay away from these asset classes. The regulator here too, will always work towards risk mitigating mechanisms. They have been implementing rules/regulations. They will continue to do so at all times.
Just relate back to the examples mentioned above i.e, of airline crashes & real estate fiascos. We do still fly by air, we do still buy real estate despite the fact that they do carry risk.
In life, everything comes with an element of risk. We all must know to understand the intensity of risk and learn to reduce it as much as possible.
In wealth creation journey, the only way to reach your goals is to stick to asset allocation with a clear understanding of the time frame of these goals. This helps to participate in Risk alongside Safety.
Key points to keep in mind always while in your wealth creation journey are, To have :
- Emergency funds – At any point of time, have 12-18 months of your monthly expenses as Emergency funds, invested either in Bank Fixed deposits or in Liquid / Ultrashort term Mutual funds
- Short Term Goals (1-3yrs) – Any requirement of money in the next three years, should be either in Bank FDs/Short Term Debt funds.
- Medium Term Goals (3-5yrs) – Any requirement of money in next 3-5years, should be in Medium Term Debt Funds with the high-quality rating.
- Long Term Goals ( > 5 yrs) – Any requirement of money after 5 years should be equity mutual funds as per your risk profile.
Risk is inevitable but how we deal with is in our hands. Risk can be your friend if you understand it correctly and do the right asset allocation of your money.
Please remember, the current situation / the current conditions of the market, is of least importance to you in five years from now.
Happy & Safe Investing !!
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