While you cannot predict too many things with certainty when it comes to financial planning, you can be sure that there will always be one thing: risk.
Although it may never go away, there are steps and decisions you can make to introduce more risk management in personal financial planning to help you to mitigate and reduce the role that it plays in shaping your future.
Ready to learn how? This article will walk you through some of the key aspects of risk management, why it’s important to prioritize it, and the steps you can take to assess your risk.
What is risk management in personal financial planning?
Behind every decision you make about how, when, and where to invest your money, risk is there lurking, making even the most experienced investors second-guess their decisions or run through the numbers one more time.
However, instead of letting risk—and the fear that it can give some personal investors—scare you into not acting at all, you can learn how to control and mitigate it. That’s what risk management in personal financial planning is all about.
For some, the right risk mitigation strategy is to avoid taking the risk at all. For others, it is accepting the risks given the potential benefits. Others find a compromise, such as by starting with a small investment, balancing their investment with something not as risky, or by speaking with a financial professional about their options.
How can you assess and mitigate risk in your financial planning?
While there are several different approaches, assessing and mitigating risk generally includes:
- Identifying the potential investment risk, its cause(s), its potential to occur, and its consequences
- Determining how much of the risk you are willing to accept
- Developing strategies to mitigate the risk you choose to accept or eliminate the risk you are not
Once you move through these steps, come up with a plan, and implement it, it’s important to regularly reevaluate your decisions and calculations, especially when there is a significant change in your family, your career, or in the larger financial markets.
Why is risk management in personal financial planning important?
In other words, risk management in personal financial planning is about helping you to make the best decision, limit the amount of emotion in the decision-making process, and help you to identify how much risk you are willing to accept given the potential gains.
At the end of the process, you can replace that feeling of nervousness or doubt with:
- Knowing that you are more prepared for the unexpected
- A portfolio of investments that are better able to protect your family, assets, and plans against the unknown
- The knowledge that the potential gains and risk from your investments are balanced or are in a place that you feel comfortable with
Ready to take control of your risk?
Understanding risk management in personal financial planning can be complex and constantly changing, but, fortunately, you don’t have to face these challenges alone.
Instead, you can have the experienced team at Harvest Wealth Group partner with you and provide our tools and knowledge to help guide you and your family through the decision-making process. In the end, you can have a better understanding of your potential risk, your plans to control it, and how your decisions align with your goals and values.
If you would like to learn more about risk management in personal financial planning, our team would love to get to know you. Contact us here to schedule a free consultation and, while you are at it, we also welcome you to download our free resource, 10 Things A Smart Investor Should Consider In an Economic Downturn.
About the Author
Garrett German* founded Harvest Wealth Group with the aim to create a meaningful experience that will impact his clients, in a significant way, both personally and financially. After your first meeting with our team, you’ll be on your way to financial clarity and confidence.