Managing risks

We are pleased to report this morning that Informed Choice chartered financial planner Nick Bamford has passed his CII Risk Management exam.

This is an Advanced Diploma module designed to develop an understanding of the role of risk management in producing strategies for handling risk in any organisation.

Managing risk is a very important part of what we do as a firm of Chartered Financial Planners.

Along with building and managing wealth, we work with individuals, trustees and business owners to protect their wealth.

Risks can be managed in a variety of ways. The starting point for managing risk is typically understanding the potential risks to wealth and then quantifying these.

Once risks are understood, it is possible to consider the variety of options for mitigating them.

Insurance is one tool that can be used to manage risks.

The clients we typically work with here at Informed Choice are often in a position to use their existing capital to manage risks. Placing wealth in a trust is one method that can be used.

Risk management is also an essential part of investing money.

Our focus on risk management when making investment recommendations is designed to balance meeting investment objectives, such as investment growth, and protecting assets from the worst of any downside.

One way we achieve this is through use of diversification; with investments spread across a variety of investment asset classes. This means the investor benefits from the negative correlation between asset classes.

For example, whilst equity funds have typically lost value over the past twelve months, most fixed interest funds have gained value. In some instances, such as for index-linked gilt funds, returns of over 20% have been achieved this year.

Combining the falling values from equity funds with the rising values from fixed interest funds has allowed many portfolios, particularly those for more cautious investors, to experience positive returns in these volatile times.

Whilst managing risk only represents one-third of what we do for our clients, it is a very important service.

Photo credit: Flickr/The Fayj