Category: Uncategorized

Types of Risk Management

Jeff Drobny began his career at Cargill in 1994 as a senior trader. Since that time, Jeff Drobny has taken on a number of roles at the company, including risk management and commodity trading.

Risk management is one of the most important tasks that financial professionals handle, particularly those who are responsible for investing on behalf of high-net-worth clients. Risk management is conducted using a variety of strategies that assess the potential of each investment and seek ways of minimizing the likelihood of failure. Risk management can also be applied to an entire portfolio rather than a single investment; diversification, in fact, is a popular form of risk management that many amateur investors employ without even being aware of it. Diversification involves investing in dissimilar markets to safeguard against a particular market crash, though investors must make sure that the markets are not interdependent.

Two basic and extreme forms of risk management are risk avoidance and risk acceptance. Risk avoidance occurs when investors decline to invest in any situation that poses even the slightest degree of risk. While this may seem like an approach with some merit for conservative investors, risk avoidance disqualifies the vast majority of investment options and is often the most costly form of risk mitigation. Risk acceptance, as its title infers, is the practice of investing with no concern for risk. While this may seem like an anti-strategy, large corporations are not always eager to spend large amounts of money to mitigate risks that may never materialize.