Effective risk management is crucial for long-term portfolio success. This article outlines the top 20 investment risks that any serious money manager should know and understand, with examples and strategies for controlling and mitigating risk.
Investing will always involve some level of risk. In other words, investors should recognize and accept that risk can never be eliminated and that tradeoffs exist. Take a look at the table below to see some sample strategies to control risk.
|Risk Type||Risk Control Strategy|
|Market Risk||Allocate across asset classes like stocks, bonds, cash equivalents, and liquid alts.|
|Interest Rate Risk||Align portfolio duration with investor time horizon and world view.|
|Concentration Risk||Avoid asset and sector over-concentration.|
|Credit Risk||Own high-quality investment-grade bonds.|
|Liquidity Risk||Limit exposure to non-marketable private assets.|
|Inflation Risk||Invest in inflation-protected bonds.|
|Style Risk||Diversify across investment styles like value, growth, small-cap, and large-cap.|
Maintaining a well-diversified portfolio aligned with an investor’s risk tolerance and objectives helps minimize potential risk. It’s equally essential that a competent money manager continuously monitor and adjust portfolio asset allocation as needed. Decision-making should be grounded in evidence-based strategies and robust financial theory, not emotions. Be wary of any advisor who claims an investment has no risk; such claims may warrant considering an alternative advisor.
In summary, partnering with a qualified professional can instill confidence that your portfolio is resilient, aligns with your goals, and effectively manages risk. At Successful Portfolios, our expertise in constructing diversified portfolios and our disciplined risk management approach ensure your investments are positioned for growth opportunities while shielding against undue losses.
If you are concerned about the risks impacting your investments, call or text (727) 744-3614. Prioritizing and managing investment risk is the heart of what we do as professional money managers.