The concept of “risk management” or “reduced risk exposure” is fundamental to asset allocation. What is risk? A number of general definitions are available such as “the uncertainty regarding the expected rate of return from an investment”. Specific types of risk are also calculated by superannuation fund managers (eg. downside risk). Risk is often included in investment advertising, as it is an important element in investing.
Some risks are clearly visible. Others hide from sight.
The unexpected is the one thing you can always expect.
Suppose that overseas political upheaval thins out the flow of a raw material that you can’t do without or significantly changes the level of interest rate and exchange rate?
Life can’t be risk free and leadership isn’t built on sure things.
­given the importance of investment risk, we will spend a lot of time in subsequent sections of this article discussing and assessing investment risk. In particular we will examine the issue of shares being “high risk” and property (real estate) being “low risk”.
A fundamental concept is that investors should clearly follow the “golden rule” of investment and develop a diversified investment portfolio to reduce risk exposure or expressed more simply, don’t put all your eggs in one basket.
On the next article we will discuss diversified investment portfolios and risk.