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How Can I Mitigate Risk?

Risk is a part of investing in the stock market.
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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 01 October 2014
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Mitigating or managing risk is something that just about everyone does at one time or another. Whether attempting to deal with the level of risk inherent in making investments in the stock market or while engaged in business planning, it is necessary to mitigate risk in order to achieve the greatest degree of success.

In terms of investing in various types of financial markets, it is important to understand there is a degree of risk associated with every transaction. Since most investments which offer significant returns are more volatile in nature, it is important to assess the degree of risk involved. This allows you to project the possible impact on your overall financial stability. Engaging in risk assessment and how it affects your entire portfolio instead of just the one investment makes it possible to mitigate risk to a level that you feel comfortable living with, and can manage if the investment does not go as well as you had hoped.

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The same basic principles hold true when it comes to operating a business. Part of any effective business planning process is to engage in risk analysis. This often involves determining what amount of revenue must be generated per period in order to keep the business profitable, and what type of strategies are necessary to minimize the chances of failing to generate that level of income. In terms of a new product launch, a company would also want to mitigate risk factors by assessing what must be done in order to reach and attract as many consumers in the targeted market sector as possible. Doing so decreases the risk of failure, while enhancing the chance for success.

Another approach to risk management for both individuals and businesses is to evaluate the amount and type of insurance coverage that is maintained. Having the proper amount of insurance protection is one of the most important ways to mitigate risk and help to keep on solid financial ground. The right type of insurance will provide resources when the unexpected happens that will prevent a financial crisis, especially one that could threaten to undermine the entire financial base. In order to determine what type and how much insurance you need, it is a good idea to undergo a complete risk analysis that takes a comprehensive look at all relevant factors, including your line of work, your general health, and your current financial status.

While the process to mitigate risk will vary somewhat from one situation to another, proper risk mitigation calls for understanding what you currently have and what needs to be done in order to maintain your status. At the very least, you want to mitigate risk levels so that you will lose no more than a minimum of your total assets in the event a business transaction or investment strategy does not work out as expected.

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suntan12
Post 3

Sunshine31- That is a good way to mitigate risk because you never know what can happen in a business.

If you have a small business you might mitigate risk by expanding slowly and taking calculating measures in order to expand.

You might want to consider a market research study in order to determine how well your new product will be received by your target market before you launch it.

You can also include focus groups that share information about your competitors that will help you learn what you need to do to improve your business instead of expanding blindly without regard to understanding your market.

sunshine31
Post 2

Subway11- I agree with you and want to add that entrepreneurs have to protect themselves from litigation by purchasing insurance.

Those business owners in the service industry can purchase professional liability insurance and if you sell or manufacture products you might consider product liability insurance.

You might want to ask your current home owner or auto insurance carrier if they offer this type of coverage. Most insurance companies do and they might be able to offer you a discount if you have multiple policies with them.

This is how to mitigate the risk in a small business.

subway11
Post 1

I think that you have to mitigate risk with a new business. Keeping expenses low and possibly keeping your full time job will help you capitalize your business in the beginning.

If you quit your job without knowing whether you are going to be successful with your business you will raise your risk significantly and will put more pressure on yourself to succeed.

I think that having a significant amount of savings is also necessary especially in the start up phase.

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