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Risk Management Essentials - by Moneyplantfx

At Moneyplantfx we believe that investing successfully begins with solid risk management. Whether you are a new investor or an experienced trader, understanding risk is key to making informed and confident investment decisions.

  

Before you begin investing in any financial instruments, you must face the fact that there are, and will always be in every single investment that you ever make today, tomorrow and beyond, risks that you need to consider. When things are good, we can think of the concept of risk and return in the same sense with them being two sides of the same coin, and your success in the financial markets will be determined by how well you think of the risk of your investing as well.

  

In this guide, we will discuss the main types of Investment Risks and will also introduce you to some risk management strategies to help you reduce the risk associated with your investing that everyone who invests with Moneyplantfx should learn.

What Is Risk Management?

Risk management is the process of identifying, assessing and addressing uncertainty in investment decisions. At Moneyplantfx we stress that managing risk is not the same as eliminating risk, it means understanding it.

Whether you’re managing your own investment portfolio, or you work with a fund manager, risk management means:

• Understanding and assessing losses you could sustain in your investment strategy
  
  

• Creating methods where you can limit or avoid those losses and risks
  
  

• Ultimately making sound decisions in consideration of your financial goals and risk tolerance
  
  

If you have a sound risk management framework, you will not only protect your capital but also increase your chances of accumulating wealth.

Investment Risk Types

At Moneyplantfx we educate our client about risks they may encounter in their investment journey:

1. Market Risk

Investment returns may fall in value because of economic fluctuations or global events. The types of market risk include:

• Equity Risk - Price drops in stock values
  
  
• Interest Rate Risk - Price drops in bond values because of rising interest rates
  
  
• Currency Risk - Shifting rates in foreign currency
  
  

2. Liquidity Risk

This risk involves having assets that you cannot quickly sell without a significant loss in value. In times of need or emergencies, liquidity events create a situation where we cannot gain access to any of our money.

3. Concentration Risk

This risk occurs when you invest a large amount of capital into a single investment; if that investment goes sour, you run the risk that your entire portfolio loses value.

4. Credit Risk

This risk is the opportunity cost risk that the bond issuer (company or government) will default on repaying your principal and interest.

5. Reinvestment Risk

The risk of having to reinvest at lower rates than you expected, thus limiting your future earnings.

6. Inflation Risk

Your investments may fall below the rate of inflation, meaning you have to deal with diminished purchasing power, which reduces the real value of your returns.

7. Horizon Risk

Events in life such as losing a job or dealing with medical emergencies may prompt you to cash out of investments sooner than anticipated, which could incur penalties and/or lower returns.

8. Longevity Risk

You could run out of money before you run out of life, particularly if you have not planned for adequate long-term retirement income.

9. Foreign Investment Risk

Investing outside your local market creates opportunities as well as risks associated with currency fluctuations, political upheaval, or market regulation.

Moneyplantfx Approach to Risk Management

At Moneyplantfx we espouse a multi-layered approach to risk management based on the investor's objectives and risk tolerance. Here is how we view and manage risk:

1. Avoidance

Choose the safest investment options with the least risk exposure. While the returns may be limited, capital protection is ensured.

2. Retention

We have areas where we are comfortable to have our clients accept certain degrees of risk where the potential returns justify the risk taken. Risks are expected and therefore can be planned for.

3. Sharing

Risk can be spread among several investors, which decreases the risk to an individual investor. For example, in joint ventures or co-investing with other clients.

4. Transferring

We can use risk through insurance or hedging to transfer certain types of risk (health risk, currency risk) to other parties.

5. Loss Prevention and Reduction

We assist investors in constructing various portfolios that lessen the risk of underperformance from a single asset.

We concentrate on execution of tools such as stop-loss orders, asset allocation, and risk-adjusted return analysis.

Your Investment Journey with Moneyplantfx

Risk management is an ongoing process, not a one-off activity. At Moneyplantfx, we help you:

• Set out clear financial goals.
  
  
• Assess risk bearing capacity and risk appetite.
  
  
• Identify and measure risks.
  
  
• Create and implement flexible risk-reducing strategies.
  
  
• Review and modify plans as market conditions progress.
  
  

Conclusion

Investing entails uncertainty, but if you can manage that uncertainty, it transforms into opportunity.

We enable you to invest with confidence by employing expert advice, risk-focused strategies, and personalized financial planning and assessments. Our goal is to help you grow your wealth in a prudent manner. We understand there are risks.

The next steps on your path to prudent investing starts today with Moneyplantfx.