Whatever you choose to do, or not do, with your money, you run risks. If you stash it under your pillow, it won't earn interest and you run the risk of losing it to thieves. So not taking risk is also risky. There’s no way to avoid risk.

But you can manage it sensibly to stay within your personal limits by mixing and matching assets. The single most important insight about investment risk is that it’s not about the volatility of individual investments but how all the holdings interact.

To get an accurate fix on the risk quotient of your overall portfolio, you've got to factor correlations— measure how closely each asset moves in relation to others.

In other words, a well thought out asset allocation that is periodically revised and rebalanced, matters most for risk management. If 90% of your investments are in risk-free assets, you can put the remaining 10% in the most risky instruments and yet be a very low-risk investor.

Perhaps the safest investment is the PPF. It allows you to compound Rs 70,000 a year at 8% for a 30-year corpus of Rs 79.3 lakh.

If you’re employed, your employee provident fund with a contribution from the company offers a current yield of 8.5%. The danger? If inflation runs higher than 8.5% for a substantial period, your nest egg will erode.

If you seek higher returns in real estate or stocks, you might lose a large chunk of capital. In order to earn a higher return, you must run higher risks. Sometimes that will lead to losses.

Even billionaire investor Warren Buffett has made expensive mistakes.

In his 1987 letter to Berkshire Hathaway shareholders, Buffett confessed that he would sell over-valued holdings. He would also sell, even at loss, to raise money for more lucrative opportunities.

The Nifty touched yet another of a succession of all-time highs on 23 May. Of course, this bull run can't last forever. There will be a correction sometime and it may be severe.

But we can state with some assurance that, over the long term, the stock market tracks the economy and, that is likely to be in good shape for the next decade. If you can buy and hold decent businesses, stocks promise better returns than most other assets.

Translating this into real returns is not easy. It requires active monitoring as well as external help in tracking investments periodically.

If you can however implement this strategy, the returns of your whole portfolio will indeed exceed the sum of the parts. Happy Investing!