Management, administration and risk management in terms of personal finance, is to control the risk may exist when investing money.
Any investment has risk, ie, a probability of obtaining bad results; usually, the more profit potential offered an investment, the greater the risk involved, and, conversely, the less profitable offer, the lower your risk.
For example, investing money in creating a company has a high promise of profitability, but also a high risk, unlike, for example, invest money in a savings account, which has low profitability, but also a low risk.
One objective of risk management is to minimize or reduce the risk that there may be the time to invest;although, however, risk management involves also assume some risk as they seek greater profitability.
Irrigation management involves the following steps:
- Information collection : is to collect information, or well informed about an investment before making a decision to acquire, which means knowing their characteristics, advantages, disadvantages, returns offered (eg interest rates should possess) , market, etc.
- Information analysis : is to analyze the information collected, or the investment itself, in order to determine as accurately as possible their profitability, performance, capital recovery period, safety or risk, etc.
- Comparison of investment alternatives : should have several investment alternatives, we proceed to compare taking into account factors such as the required investment, profitability, risk, liquidity, etc.
- Selection of the best investment alternative : in this step we proceed to choose the best alternative investment, based on factors such as our capital, knowledge, profitability goals, risk tolerance, etc.
- Diversification : the diversification is to create a portfolio or investment portfolio diversified, ie not concentrate all the money in a single investment or a single type of investment, but distribute it in different investments in order to minimize risk.