Key - Personal

Managing Risk in Investments

Sophisticated investors know that all investments carry with them some level of risk. An important element of investment management is recognizing various types of risks and controlling their impact on your overall portfolio. Four primary types of investment risk, and strategies for dealing with them, are outlined below.


This is the risk most people associate with investing. If you buy a stock or other security, it might gain or lose value, creating a gain or loss for you. Of course, the aim of investment management is to minimize this risk through the selection of diversified investments. Through a well-planned diversification strategy, you can ensure that no particular security's performance will jeopardize your overall portfolio performance. Diversification across several or many types of investment vehicles is an important investment management approach.

Market Fluctuations

Individual investment vehicles have unique characteristics and qualities that affect their changes in value. In addition, categories of investments tend to gain and lose value concurrently. Stocks follow some general trends as a market, as do bonds and other securities. Once again, diversification is the best hedge against the risk of market fluctuations. Many markets behave somewhat independently of each other. For instance, bonds might hold value when stocks lose it. You need the advice of an experienced investment manager to establish the best diversification strategy for your individual situation-one that attempts to maximize your gains while minimizing your market fluctuation risk.


As your investments gain and lose value in their individual markets, the dollar gains and loses purchasing power. The rate of inflation can decrease the value of your portfolio. Your investment management strategy must weigh the risk of inflation against the risks of individual investments that may have rates of return higher than inflation.

Interest Rates

The relationship between interest rates and the prices of fixed-rate securities, such as taxable and tax-free bonds, can expose your portfolio to risk. As interest rates fall, the prices of fixed-rate securities generally rise. Conversely, the prices of fixed-rate securities usually fall as interest rates rise. Your investment management strategy can balance this risk by adjusting the term of the fixed-rate securities you hold. Again, the advice of a qualified investment manager can help you optimize your portfolio's performance while protecting against the risk of rising interest rates.


Contact Information
