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Risk Management Financial Risk Planning

Financial risk is the potential to lose some or all of your investment capital. Individual investors face financial risk whenever they invest their money. Financial markets also face risk, “due to various macroeconomic forces, changes to the market interest rate, and the possibility of default by sectors or large corporations. Individuals face financial risk when they make decisions that may jeopardize their income or ability to pay a debt they have assumed.”1 In my Amazon and Wall Street best-selling book, Redefining Financial Literacy, I explore these macroeconomic forces. I call these hidden forces that have an impact on your investment decisions. The purpose of risk management financial planning is to mitigate against these risks.

Asset Management Advice

As the name implies, asset management advice refers to the management of investments offered by financial planners and other financial institutions such as investment banks and university endowments. The goal of asset management is to increase a client’s assets over time while managing risk. Asset management utilizes both fundamental and technical analysis. Asset managers may use fundamental analysis to study anything that can impact an asset’s value. For example, any economic or political news can have an impact on the value of a security or asset. Technical analysis, on the other hand, relies on previous price and volume. In other words, asset managers may look at historical date, along with mathematical patterns, known as technical indicators, to fine tune their investment entry and exit points.

Please remember that a competent and experienced financial advisor is also an educator. In my opinion, one of the most important attributes of an asset manager is to educate. The education process, “may include detailed help with financial topics. At the beginning of your relationship, those topics may include budgeting and saving. As you advance in your knowledge, the advisor will assist you in understanding complex investment, insurance, and tax matters.”2 I should also add that, in my opinion, any risk management financial planning must include advice about alternative investments.

It is important to remember that alternative Investments are speculative by nature and have various risks including possible lack of liquidity, lack of control, changes in business conditions and devaluation based on the investment, the economy and or regulatory changes. As a result, the values of alternative investments do fluctuate resulting in the value at sale being more or less than the original price paid if a liquid market for the securities is found. Alternative investments are not appropriate for all investors. No investment process is free of risk, no strategy or risk management technique can guarantee returns or eliminate risk in any market environment. There is no guarantee that this investment model/process will be profitable. Diversification does not guarantee profit nor is it guaranteed to prevent losses.

Investment Risk Management Strategies

Risk is one of those unavoidable things in investing. There are two broadly defined investor types. There are some investors who focus almost exclusively on returns and how fast they can grow their money. This type of investor is always finding ways to protect herself against the inevitability of a market correction or a bear market by using risk management strategies. For those who focus on risk, there are risk investment strategies that may be very helpful.

  • One strategy to help you manage risk is to reevaluate your portfolio diversification and asset allocation. To further diversify, investors may want to think beyond stocks and bonds.3
  • Another risk management strategy is known as rebalancing. The process of rebalancing is to keep a portfolio well-diversified. You see, over time, different assets have different returns or losses. This might mean that you let go of those investments that have appreciated in value while buying investments that are declining in value.
  • Another risk investment strategy is to invest consistently. In other words, don’t over react if your investment is declining. If you are in this for the long-term, US Stock Markets can rise and decline over time so it’s important to understand your investment time horizon.
  • You can also get an investment risk analysis. This is also known as your risk profile. Investors are generally classified as aggressive, moderate, or conservative investors. You need to know which type of investor you are.

Another aspect of risk management strategy is what I call portfolio recovery. What I mean by this is that you sit down with a qualified and experienced financial planner in order to analyze your asset distribution, risk profile, time horizon, and other aspects of your current portfolio. The recovery part is to determine what changes, if any, are needed to put you, or keep you, on the right track.

Estate Conservation

Estate conservation is essentially the process of managing, “assets during your lifetime and [distributing] assets upon your death.”4 Think of an estate as, “everything comprising the net worth of an individual, including all land and real estate, possessions, financial securities, cash, and other assets the individual owns or has a controlling interesting in.”5 In most instances, estates act as a mechanism for the passage of wealth from one generation to the next. The transfer of an estate can be done though a will or trust. A will is a legal document that, “coordinates the distribution of your assets after death and can appoint guardians for minor children.”6 Another legal instrument you can use to manage your assets is a trust, which offer legal protection for your assets. A trust is a, “fiduciary relationship in which one party, known as a trustor, gives another party, the trustee, the right to hold title to property or assets for the benefit of a third party, the beneficiary.”7 There typically two types of trusts: a living trust and testamentary trust. A living trust is legal document where an individual’s assets are provided as trust for the individual’s benefit during their lifetime. A testamentary trust specifies how the assets of an individual are designated after the individual’s death.8 Regardless of whether you use a will or trust, it is important that you have a will or trust in place. This will save your heirs a great deal of money and headache going through probate court.

Retirement Plan Analysis

A retirement plan analysis is quite simply an examination of your current financial plan. It is designed to determine if you are on a path to realize your goals for retirement. Part of the retirement plan analysis is to check if you have a 401(k) plan and if your contributions are on track. Other areas of a retirement plan analysis include when you can comfortably retire, your Social Security benefits, investment strategy, as well as budget and savings. It is advisable to have a qualified and experienced financial planner sit down with you to analyze, for example, “projections regarding the potential future value of your 401(k) plan, Social Security benefits, pension plans and other assets to provide you with estimates of how much retirement income your assets and benefits may provide to you.”9 There is one important rule that I always tell my clients about retirement plans: the earlier you make one, the better position you will be to reitre comfortably.

Cinergy Video Link Is It Possible To Retire In 20 Years

Retirement Planning Advisor

One of the most important aspects of money management is the retirement planning advisor. In my other blogs, you may have noticed that I’ve always stressed the importance of consulting a retirement planning advisor. Now, it is important to remember that not all retirement planning advisors are the same. You need to find someone who is qualified and has many years of experience. You also need to look for an advisor who not only understands stocks and bonds, but also alternative investments.

It is important to remember that alternative Investments are speculative by nature and have various risks including possible lack of liquidity, lack of control, changes in business conditions and devaluation based on the investment, the economy and or regulatory changes. As a result, the values of alternative investments do fluctuate resulting in the value at sale being more or less than the original price paid if a liquid market for the securities is found. Alternative investments are not appropriate for all investors. No investment process is free of risk, no strategy or risk management technique can guarantee returns or eliminate risk in any market environment. There is no guarantee that this investment model/process will be profitable. Diversification does not guarantee profit nor is it guaranteed to prevent losses.

Targeted Retirement Advice

Retirement is one of those life events that many of us procrastinate about. Statistics show that an overwhelming number of Americans are ill prepared for retirement. This is why you need to begin to ask the right questions and then sit down with a qualified and experienced financial planner to develop a strategy that is unique to your specific situation. Below are five factors that contribute to financial uncertainty:

  • When should you retire?
  • How much will I need for my retirement years?
  • How much can I safely withdraw each year without depleting my investment portfolio?
  • How do I provide a legacy for my loved ones?
  • Will I be able to rely on Social Security benefits?
  • Will my pension be able to take care of me?
  • Should I plan for retirement on my own or get targeted retirement advice from a qualified and experienced financial planner?

Prepare for retirement

  • One rule of thumb is that the earlier you prepare for retirement, the more comfortable you will be during retirement.
  • Start saving at an early age, keep saving, and stick to your goals.
  • Get to know your retirement needs.
  • Some experts maintain that you will need 70 to 90 percent of your preretirement income to maintain your standard of living when you stop working.
  • Contribute to your employer’s retirement savings plan such as a 40(k) plan.
  • Learn about your employer’s pension plan. Make sure you are covered by the plan and understand how it works.
  • Learn about how your pension is being invested.
  • Most importantly is that you do not touch your retirement savings.

Financial Risk Management Strategies

Financial risk management strategies involve a process of assessing, managing, and mitigating losses. This process is used by large corporations as well as financial planners to potentially minimize risk. One very important feature of financial risk management is to reduce the degree of uncertainty in investment decisions. Fund managers for large institutional investors or university endowments quantify the potential for losses as a result of investment strategies. Financial risk management strategies are connected to the concept of return on investment. For example, the degree of risk for a U.S. T-bill is close to zero while the risk for emerging-market equities is very high. The goal, of course, for fund managers and financial planners is to minimize risk as much as possible.

Cinergy Redefining Financial Literacy Book Link 2Financial Literacy Book

One of the reasons I wrote my Amazon and Wall Street Journal best-selling book, Redefining Financial Literacy, was to shed light on the financial literacy problem in America. When you consider that only 6 states require high school students to take a personal finance course in order to graduate, you begin to appreciate the magnitude of the problem.10 Both local, state, and the federal government need to do more to ensure that high school graduates have a basic understanding of budgeting, savings, and investing. I also defined financial literacy in terms of the hidden political and economic forces that impact your investment decisions. In addition to offering advice for retirement, I also revealed my mullti-asset class investment portfolio that can potentially offer you robust returns while managing risk.


1. Adam Hayes, “Financial Risk,” Investopedia, March 24, 2021. https://www.investopedia.com/terms/f/financialrisk.asp

2. Amy Fontinelle, “What do Financial Advisors Do?” Investopedia, January 25, 2021. https://www.investopedia.com/articles/personal-finance/050815/what-do-financial-advisers-do.asp

3. SoFi Learn, “6 Investment Risk Management Strategies,” sofi.com, September 10, 2020. https://www.sofi.com/learn/content/investment-risk-management/

4. Broadridge Advisor, “Estate Conservation,” broadridgeadvisor.com, Retrieved August 17, 2021. https://www.broadridgeadvisor.com/docs/seminar/estate-conservation-workbook.pdf

5. Julia Kagan, “Estate,” Investopedia, November 22, 2020. https://www.investopedia.com/terms/e/estate.asp

6. Fidelity, “What is a Will?” fidelity.com, Retrieved August 17, 2021. https://www.fidelity.com/life-events/estate-planning/will

7. Julia Kagan, “What is a Trust,” Investopedia, October 19, 2020. https://www.investopedia.com/terms/t/trust.asp

8. Ibid

9. Bosch Financial, “Retirement Plan Analysis,” boschfinancial.com, Retrieved August 18, 2021. https://boschfinancial.com/retirement-plan-analysis/

10. Tim Ranzetta, “How Many State Require Students to Take a Personal Finance Course Before Graduating from High School? Is it 6 or is it 21?” ngpf.org, February 12, 2020. https://www.ngpf.org/blog/advocacy/how-many-states-require-students-to-take-a-personal-finance-course-before-graduating-from-high-school-is-it-6-or-is-it-21/

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