Due to the uncertainty of the economy, every investment opportunity brings along with it its own share of risks. With the ups and downs of the financial and stock markets, people are extremely cautious in what venture they invest in as well as the amount.
When people think of the term risk, they narrow it down to two main keywords; avoiding and minimizing loss.
But more often than not, to truly understand risk, we need to have a broader perspective of the term. It may not always be beneficial to avoid or minimize risk, rather, it may be better for you to embrace it and take on more such ventures. Because sometimes, failure to accept and take on certain risks may ultimately lead to financial disaster’ something that should definitely be avoided.
Not about playing down risk
Risk management is not about playing down risk. Rather, it is about keenly comprehending and embracing those risks that offer the greatest probability of achieving an organization’s goals with an adequate chance of letdown or failure.
In fact, risk management is not even about forecasting risks. Relatively, it is being equipped for both positive and negative volatile events so much so, that their force would have already been quantified and considered in advance.
Good risk management does not put off losses but continuously provides supervision with the awareness and insight to steer as competently as possible (that is in terms of taking risks) in the direction of the goals set by the governing body.
“Risk-free” or “safe” investment
One common issue is usually when a person retiring (or close to retiring) because of a characterization of risk that is centered on steering clear of losses, puts in considerable sums of money in low-interest bearing investments such as CDs or other cash equivalents. The philosophy behind such a conclusion is that these investments are “risk-free” or “safe”. What this observation fails to take into account, however, is that risk comes in many shapes and sizes and should not exclusively be associated with avoiding losses.
A more holistic view of risk takes into account various other types of risk, such as inflation risk, interest rate risk, or the risk of not accomplishing larger financial goals such as leaving behind an inheritance or retiring with a certain standard of living. Hence, earning much less of a return on one’s investments may mean that one will run out of wealth during retirement, a scenario that is far from “safe”.
Indispensable part of living
Therefore, instead of avoiding risk, it is very important to realize that risk is an indispensable part of living as well as surviving in this capitalist economy.
It is clear that avoiding risk isn’t a good idea; hence the next step would be to define, quantify as well as manage it, making the loss that may arise as less as possible. The best help would be a financial planner, who knows the in and outs of the domain and would help you increase your wealth, therefore increasing the standard of living and quality of life.