When a beginner thinks about risk management, they immediately look for fixed income investments, or real estate funds. However, diversification of the investment portfolio is the opposite strategy, seeking assets that have a low correlation with the others.
Regardless of the investment profile, from the most conservative to the most aggressive, risk-taking, it is necessary to seek a resilient strategy, that is, one capable of surviving unexpected shocks.
We will show how even investments considered safe can become a problem for those who do not manage risk correctly. This includes Treasury Direct, and even dividend-paying stocks.
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Is diversification and risk management the same thing?
No. Portfolio diversification is part of risk management, but it is just one of the strategies used to minimize losses. Diversification is allocating equity into different asset classes, avoiding concentration on a single source of risk.
Risk management also involves the analysis of volatility, that is, how much each asset usually varies, the peaks and dips that can bring short-term surprises.
Another important concept present in risk management is the liquidity of investments, the ease of disposing of an asset without significant loss of value.
In short, there are several factors that must be considered in risk management, and this will depend on the ability of each one to accept short-term losses, to make new investments, investment horizon, and even the level of knowledge of more complex financial products.
Why is it important to have a diversified portfolio?
Diversifying the investment portfolio is the best way to avoid negative surprises. By dividing the amount into different risk classes and growth vectors, you minimize the chances of losing.
Success can be achieved even by following simple rules, allocating equally to three different investment classes.