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Apr 14, 2017

What to know about risk management

Banking/Personal Finance, Financial Literacy, General Information

woman crossing arms and smiling at cameraWhen you’re building a financial portfolio, one of the first things to consider is how you’ll protect your investments and manage any risks. You want to get the greatest return possible from your investments, but that requires thoughtful risk management. It can seem like a big job, but if you take the time to educate yourself, you will be able to manage your investment risk. Here are a few tips to get you started.

How to assess your risk tolerance

As you’re preparing your financial portfolio, you may find yourself wondering, “What is risk assessment?” Risk assessment means making a decision about how much risk you’re willing to take with your investments and how much risk the investments are likely to endure. You can assess your risk tolerance based on your income and savings, the amount of time you can let your investments grow, the investments you choose and your goals for them. Even your personal comfort level will play a role in your risk assessment. Based on these variables, you’ll then be able to determine whether you’re able to be a high risk investor, or whether you should err toward lower risk investments.

For example, if you’re nearing retirement and will need to use the money you’re investing soon, you’ll likely fall on the conservative end of the risk spectrum. You’ll want to choose more stable investments that don’t risk losing a great deal of your money. If you’re on the younger side and have some money tucked away, you have time to try some riskier investments that also have the potential for big returns.

What is risk management, and how does it play a part in safeguarding your money?

Risk management is really about choosing the right investments for where you are in your life and your goals. Choosing to invest all your savings in stocks at the age of 63 is probably not the best idea, because the stock market is unpredictable and the risk of losing too much is high. If you’re dependent on this money, or will be soon, you don’t want a high percentage of high-risk investments in your portfolio. Instead, aim for a balanced portfolio that allows most of your money to grow without much risk, while investing a smaller portion in riskier equities. This way, your portfolio can tolerate the risk because you’ll have a larger percentage of more predictable investments like Mission Fed’s Certificates, Money Market Accounts or even traditional Savings Accounts. These allow your money to grow, but still let you access it when you need cash.

Someone with a greater risk tolerance can take bigger chances with their investments. High-risk investments—like higher-risk stock options, futures or collectables—can mean big rewards, but, because it’s more of a guessing game, anyone including these investments in their portfolio should also be prepared to potentially lose that money. Don’t invest money you’ll need to live on in high-risk stocks. In fact, even someone with a high risk tolerance will want to include some low-risk investments in their portfolio so they can count on some of their money to stick around predictably and grow.

Diversifying your financial portfolio allows you to manage your risk so you can make the most money on your investments. Understanding how risk management can help you protect your money means you can build a financial portfolio and invest with confidence! Again, there are many factors that come with any investment, so make sure to read as much as you can and ask as many questions as you need to understand how your investment will impact your future financial goals. Mission Fed’s partner, CUSO Financial Services, L.P. (CFS), a registered broker-dealer, can assist you with your investments. Contact them today for more information.

The content provided in this blog consists of the opinions and ideas of the author alone and should be used for informational purposes only. Mission Federal Credit Union disclaims any liability for decisions you make based on the information provided. References to any specific commercial products, processes, or services, or the use of any trade, firm, or corporation name in this article by Mission Federal Credit Union is for the information and convenience of its readers and does not constitute endorsement, control or warranty by Mission Federal Credit Union.

 

Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the Credit Union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. Mission Federal Credit Union has contracted with CFS to make non-deposit investment products and services available to Credit Union members.

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