What is Investment Risk Management and Beyond

What is Investment Risk Management and Beyond

One thing which has been true over recent years in the investment world is that risk is everywhere; management of that risk has become a lot more than a defensive hedge. With all the volatile action in stocks, commodities, housing, and banking, being able to employ a risk management strategy has become much more than just a necessary function. Risk management has become the strategy for savvy investors who saw things turning south and bet against a variety of markets and indices. But is risk management a workable strategy for your portfolio? If you have any hopes against the next dip in whatever markets you’re involved in, you sure better hope you’re able to manage and survive and profit from risk.

RISK MANAGEMENT DEFINED:

We all know that the management of risk in your portfolio involves seeing the potential for calamity and positioning yourself in a defensive position against that event. But how can anybody see the choppy waters coming?

When savvy investors saw in the beginning of the subprime mortgage crisis that the situation has become untenable, this was an event years in the making. People who could not afford the homes they were buying got into them anyway and were offered teaser interest rates which were manageable to start; they then ballooned to a level they could not afford because the mortgages were ARM’s (Adjustable Rate Mortgages). Those who looked at the numbers knew that the rate at which these adjustable rate mortgages were being offered meant that many people were soon going to be faced with dire straits. This event was too bad for the homeowners and the economy writ large but it was great news for those who saw this coming.

In any situation you have to take a smart position. Those who knew saw that the smart money was to take a position against these unsustainable practices.

RISK MANAGEMENT AND YOU:

So the mortgage meltdown happened; so what’s next? Well there have been all manner of speculative bubbles which have popped in recent years. Healthcare, technology, and the internet stock bubble were all areas where inflated values and unsustainable practices saw a precipitous drop in price. So what do you see that you suspect will be the next bubble to pop? That is where you should go to bet against in your risk management strategy. For instance, if you invest in immobilien investieren, you have to assess the risk carefully. Every investment has its own risk. You, as an investor, need to determine them so you can prepare for them. 

We are all only human; we are all prone to not hearing our wiser selves. It is very easy to fall victim to decisions we once thought to be sound but we now see are no more. Taking an active strategy in your protection from risk is a smart move for any investor. You may have to wait a while and you may be wrong; but even when negative events get worked out over time, there are still many risk management investment strategies where you can make money in the intermittent period.