Risk management explained

Risk Management Identifying, Evaluating And Treating Risks, business concept words cloud

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.

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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.

 

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