How do you mitigate financial risk and what is the risk management process?

Risk management planning is developing a plan so that there are enough resources to insure your family’s financial security. Protecting Your Wealth with smart Risk Management Strategies and good retirement planning is essential for building long-term wealth.

What is financial risk example?

Financial risks can be risks faced by homeowners, investors and business owners in terms of handling their finances, such as defaulting on loans and their debt load. Other risks include external events and activities, such as natural disasters or disease breakouts leading to local and global health issues (like we’ve just seen with the recent pandemic, floods and fires and so on). 

Other examples of a financial risks, largely for investors and business owners, but can still affect homeowners to a lesser degree are associated with price fluctuation and volatility. Risk factors can be affested by interest rates, foreign currency exchange rates, commodity, and stock prices, and through non-stop fluctuations that produces changes in the price of financial markets and commodities.



Market risk, credit risk and liquidity risk are all part of an effective risk management plan and it is always wise to review and re-evaluate liabilities on an ongoing basis as things can change from year to year.

Setting goals and objectives and implementing investment strategies to achieve these goals is a wasted effort if there is not an appropriate Risk Management Strategy. Things to consider are Diversification, plus Asset protection, Insurances for both or all individuals as well as your assets, and Estate Planning.


Here are 5 Risk Management Strategies for Growing (& Protecting) your Wealth.

While risk is everywhere, your goal is to take the lowest amount of risk while maximizing your returns and take the steps necessary to protect yourself and manage risk with a thorough Risk Management Strategy. Everyone’s tolerance for risk is different and to meet your tolerance there are five ways you can be on the offensive and manage risk while protecting and growing your wealth in the years to come.

#1. Reassess your risks regularly.
An effective risk management plan will evaluate liabilities on an ongoing basis as things can change from year to year. Continue to update your financial goals and plans, especially as life events occur.

#2. Limit your Legal Liabilities
Consider personal liability insurance also known as umbrella coverage in addition to your existing home and car or boat insurance policies. This type of risk insurance policy is for providing coverage for claims often excluded in other liability policies. It comes into play when you have a claim in excess of the standard liability limits on your car, boat and or home policies. IE: It could be used in flood and fire and other natural disaster claims and so on.

#3. Diversification
Portfolio diversification is a key risk mitigation strategy which is the allocation of money across many asset classes and sectors. It is used to help with avoiding disaster in a time of downturn and markets slumps. To diversify, there are a few ways to consider. Thinking beyond stocks and bonds, ETFs, cryptocurrency, commodities, and REITs is wise. And sometimes investors may think they are diversified because they own a few different mutual funds, but if those funds are all invested in similar or the same stocks, then they are not as diversified as they may think.

#4. Plan for Liquidity
Liquidity refers to turning an asset into cash, the ease of doing it and how quickly you can access that cash. Your goal is to always make sure you have accessible liquidity no matter what the market is doing.

#5. Plan for Income Replacement
We can help you plan for the future and make sure that you are setup for success to hit your financial goals for retirement and beyond.
As a rule of thumb, to maintain your current lifestyle in retirement, individuals should plan for an income replacement rate of 75% of their gross pre-retirement income. This percentage might be higher or lower depending on your future goals and your situation.

Protect Your Income to Mitigate Financial Risk

An unexpected event in their life without a prudent risk management strategy to ensure that your path to creating wealth will not be impacted by an unforeseen event is another way to mitigate the risk of jeopardizing your future wealth.

Most people know that it is not wise to put all of your eggs into one basket from an investment perspective but what is often overlooked is to protect the income that allows you to invest.

There have been many different stories by people being adversely affected by an unexpected life event. Whilst ensuring insurance is being implemented in line with your overall wealth building and tax minimization strategy, protecting your income with income protection insurance can still allow you to continue to invest. Thus you can still grow your wealth instead of it declining through savvy financial risk management.

Some other ways to mitigate financial risk is to:
Always read the fine print
Have an exit strategy for every investment you make
Maintain adequate funds for emergencies
Carry the proper amount of insurances – personal and or business
Diversify your investments.
Have a second source of income.
Maintaining your physical health.

And finally, risk management in a business is also important for the future of the business.

If a long-term wealth strategy in building and protecting your wealth, that includes a risk mitigation strategy is important to you (or to book a more holistic review of your wealth and goals) call us on 08 7111 0022 or email 

REMEMBER, Action is power!

Until next time,
Make the rest of your life the best of your life.







Disclaimer: This article is factual information only. It is not intended to imply any recommendation about any financial product(s) or to constitute tax advice. The information in the article is reliable at the time of distribution, but may not be complete or accurate in the future.

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