Investment Risk Management: An Overview (2024)

FAQs

What is investment management overview? ›

Investment management is the maintenance of an investment portfolio, or a collection of financial assets. It can include purchasing and selling assets, creating short- or long-term investment strategies, overseeing a portfolio's asset allocation and developing a tax strategy.

Risk management is the process of identification, analysis, and acceptance or mitigation of uncertainty in investment decisions. Risk is inseparable from return in the investment world. Risk management strategies include avoidance, retention, sharing, transferring, and loss prevention and reduction.

Large losses are forever - in investing, in teenage driving, and in fidelity. If you avoid large losses with a strong defense, the winnings will have every opportunity to take care of themselves. And large losses are almost always caused by trying to get too much by taking too much risk.

As a rule of thumb, a high-risk investment usually comes with a higher potential return, but a greater chance of losing value. A low-risk investment may offer a lower potential return, but with that comes less probability of it going down in value.

Investment managers work with investors' money to help them reach their financial goals. They come up with ways to allocate stocks and bonds that align with the client's goals, buy and sell investments when necessary, oversee the performance of the portfolio and report results back to their clients.

Example answer: "I believe one of the most important traits in an investment manager is a commitment to others and an understanding of their needs. Being a successful investment manager requires knowing your clients well and understanding their needs, preferences, concerns and goals.

What is Risk Management? “Risk management” helps an organization to identify, evaluate, analyze, monitor, and mitigate the risks that threaten the achievement of the organization's strategic objectives in a disciplined and systematic way (note the words “disciplined” and “systematic”).

Risk management is the continuing process to identify, analyze, evaluate, and treat loss exposures and monitor risk control and financial resources to mitigate the adverse effects of loss.

In business, risk management is defined as the process of identifying, monitoring and managing potential risks in order to minimize the negative impact they may have on an organization. Examples of potential risks include security breaches, data loss, cyberattacks, system failures and natural disasters.

While the product names and descriptions can often change, examples of high-risk investments include: Cryptoassets (also known as cryptos) Mini-bonds (sometimes called high interest return bonds) Land banking.

Why is risk management important? ›

All organizations, regardless of size, need to have robust risk management in place. This is because risk management helps to proactively identify and control threats and vulnerabilities that could impact the organization negatively.

Alignment of business strategy and risk appetite should minimize the firm's exposure to large and unexpected losses. In addition, the firm's risk management capabilities need to be commensurate with the risks it expects to take.

In finance, risk refers to the degree of uncertainty and/or potential financial loss inherent in an investment decision. In general, as investment risks rise, investors seek higher returns to compensate themselves for taking such risks. Every saving and investment product has different risks and returns.

The asset class and investment horizon tend to have the greatest influence on risk for an investment. Different asset classes have different risk profiles. For instance, stocks tend to have a high-risk profile, while fixed-income assets like bonds tend to have a lower-risk profile.

Investment managers determine how money should be allocated and invested in stocks, bonds, mutual funds, hedge funds, and other securities to ensure the best possible return. They must have an in-depth knowledge of financial markets, investment strategies, and economic trends.

Investment management is also known as money management, portfolio management, or wealth management.

Understanding investment management is an important part of building wealth and securing your financial future. By carefully considering your financial goals, risk tolerance, and investment options, you can make informed decisions about where to put your money and achieve your financial goals.

In the investment management program, you'll study the financial world's ins and outs, including the stock market and real estate market. As an investment management major, you'll gain the knowledge to make that dream come true. An interest in finance, wealth and economics can lead you to a very lucrative future.