What is risk management?

Most of the actions you take in your life are not taken without some amount of risk involved in the process. From crossing the road to getting on a bus, however small the action, there are certain amounts of risk involved. The same principles apply in the financial world. 

Risk management is the process of identifying, analysing and choosing whether to accept the risk involved in your investment decision or trying to limit it. If you were to invest in a fund for example, then your fund manager would be responsible for weighing up the pros and cons of any major investment and the potential risks to your return.

However, it is important to remember that risk should not just be seen as a negative factor to be avoided. Often with higher levels of risk come higher levels of return. But the level of acceptable risk varies from person to person and this should be established before deciding what investment path to take.