Managing Risk (Personal Financial literacy)

What is Risk in financial terms?

The potential of losing money or facing adverse financial consequences.

Market Risk (Investment Risk)

The risk that the value of your investments will decline due to changes in market conditions.

Credit Risk (Default Risk)

The risk of being unable to repay debt or that a borrower may default on obligations.

Inflation Risk

The risk that inflation will erode the purchasing power of your money over time.

Liquidity Risk

The risk of not being able to quickly convert assets into cash without significant loss.

Longevity Risk

The risk of outliving your savings or retirement funds due to a longer-than-expected lifespan.

Personal/Health Risk

The risk associated with job loss, significant health issues, or other personal financial setbacks.

Diversification

Distributing your investments across various asset classes and sectors to reduce exposure to any single source of risk.

Risk Transfer (Insurance)

Shifting the financial risk to another entity typically by purchasing insurance for a premium.

Emergency Fund

Savings reserved to address unexpected expenses such as medical bills or sudden job loss.

Hedging

Utilizing financial instruments or strategies to offset potential losses in investments.

Proper Asset Allocation

Strategically distributing investments across different asset classes based on an individual's risk tolerance, time horizon, and financial objectives.

Avoiding Overexposure

Ensuring you're not too dependent on one income or investment source, thereby increasing financial vulnerability.

Rebalance Investments

Periodic portfolio assessments to re-align with intended risk levels.

Adjust Insurance Coverage

Ensure insurance adequacy in response to changing life situations.

Update Emergency Fund

Modify the size of your emergency fund as living expenses fluctuate.