| the technique or profession of assessing, minimizing, and preventing accidental loss to a business, as through the use of insurance, safety measures, etc. |
Risk Management
The process of identification, analysis and either acceptance or mitigation of uncertainty in investment decision-making. Essentially, risk management occurs anytime an investor or fund manager analyzes and attempts to quantify the potential for losses in an investment and then takes the appropriate action (or inaction) given their investment objectives and risk tolerance.
Investopedia Commentary
Simply put, risk management is a two-step process - determining what risks exist in an investment and then handling those risks in a way best-suited to your investment objectives. Risk management occurs everywhere in the financial world. It occurs when an investor buys low-risk government bonds over more risky corporate debt, when a fund manager hedges their currency exposure with currency derivatives and when a bank performs a credit check on an individual before issuing them a personal line of credit.
Related Links
Beta: Know the Risk
Corporate Use of Derivatives for Hedging
Introduction to Value at Risk (VAR) - Part 1
See also: Beta, Financial Planner, Standard Deviation, Systematic Risk, Unsystematic Risk, Volatility