Risk Management

The Importance of Risk Management in Finance

Updated on Aug 05 2019

Risk management is defined as the technique or profession of assessing, minimizing and preventing accidental loss to an individual or business through the use of insurance, marketplace expertise and safety measures.

Risk management is critical in today’s world of cyber threats, identity theft, fraud and automated financing. Not to mention, the built-in risk that is inevitable in investing. Finding a financial advisor whom you trust to help you navigate the intricacies of the financial marketplace helps to minimize risk to provide you peace of mind when it comes to your investments and retirement savings.

Risk Management in the Financial World

In the financial world, risk management is the process of identification, analysis and acceptance or mitigation of uncertainty in investment decisions. Essentially, risk management occurs any time an investor or fund manager analyzes and attempts to quantify the potential for losses in an investment and then takes the appropriate action, or inaction, given investment goals and risk tolerance.

Here are examples of managing risk in the financial world:

  • Investors buying low-risk government bonds instead of riskier corporate bonds
  • A bank performs a credit check on an individual before issuing a personal line of credit
  • Stockbrokers use financial instruments, such as options and futures to mitigate risk
  • Money managers use strategies like portfolio and investment diversification to create a balance of conservative strategies with risky investments

Minimize Your Risk: Set Yourself Up for Retirement Success

Protecting yourself from risk is trickier today than ever before since the financial landscape has shifted into an online and constantly evolving marketplace. Risk management helps you identify, assess and control threats to your capital, earnings and savings. Financial threats or risks come from a myriad of sources, including financial uncertainty, strategic management errors, legal liabilities, accidents and natural disasters.

Having a risk management plan in place to protect your assets is important when it comes to safeguarding your financial future. Do your research to find an expert financial advisor and insurance provider who provide investment expertise, direction, transparency and risk management competence.

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