Managing risk is not only about reducing the risk from investments but matching your risk profile and time horizon to the type of investment portfolio that you will hold. It would not make economic sense to have an investment portfolio of growth stocks which have higher degree of risk if your profile is that of a conservative investor or short time frame of investment. It is also about protecting your investment capital and profits by reducing the potential for loss before it occurs.
Risk cannot be eliminated completely but can be controlled. There are many options to manage your risk, from bonds to derivatives, but assessing risk is not easy to as there are many different methods of evaluating risk. The better option of managing risk, therefore, is to diversify your portfolio. Diversification can be through many different classes of assets/investments. The composition of your portfolio should reflect the level of risk that you are willing to take. As your risk profile changes with time and growing needs, its important that you monitor your investment portfolio to reflect these changes. Managing risk has to be dynamic.
No comments:
Post a Comment