Risk is the possibility that an Risk Management in Investments will experience a loss and differ from its expected return. It’s something that can affect any type of investment or asset. However, it is important to understand that not all losses are equal.

The good news is that there are many ways to help mitigate loss and to manage investing risks. For example, banks run credit checks and investors may diversify their portfolio of investments or pause trading to replenish their rainy day savings. There are also methods to quantify risk, from simple measures such as standard deviation and beta to more complex tools such as Value at Risk (VaR) and Conditional Value at Risk (CVaR).

Long-Term Investment Strategies That Deliver Results

Managing investment risks is a crucial step in making smart investing decisions. The most common types of risk include market, company specific and inflation risk. Market risk is the risk that general economic or market conditions will negatively impact your investments. This is out of your control and can be a significant factor in long-term returns. Company specific risk or idiosyncratic risk is the risk that a particular company will suffer a negative event such as a change in management, a product recall or new competition. This is a more controllable factor, but it is still present in your overall portfolio of investments.

Finally, inflation risk is the potential that increasing prices will outpace your investment returns and erode your purchasing power. It’s possible to manage these risks by diversifying your assets, adjusting your investment strategy during changing times and understanding how to protect your wealth from rising costs.