Investor perspective
Risk management is not a separate activity performed after investments are selected. It is part of deciding what to own, how much to own and what would make the decision change.
Decision lensGood risk management improves the quality of the decision before it improves the statistics.
01
Start with concentration
The largest threats to wealthy investors often come from concentrated business interests, property, currency or a small number of successful positions.
02
Use scenarios, not one forecast
Stress tests should explore plausible adverse environments rather than depend on a single market prediction.
03
Monitor liquidity and leverage
Leverage and illiquid assets can turn temporary market losses into permanent capital impairment when cash is needed at the wrong time.
04
Write down decision rules
Pre-defined review and rebalancing rules improve discipline when volatility rises and emotions become more influential.
Questions to ask before acting
A short decision checklist.
- What job is this capital expected to perform?
- What are the principal sources of return and loss?
- How much liquidity could be needed under stress?
- What assumptions would invalidate the decision?
- What review rule will govern the allocation after the initial decision?
Important: This article is educational and strategic in nature. It is not personalised investment, tax or legal advice, an offer, or a recommendation to buy or sell any asset. Appropriate regulated and specialist advice may be required depending on jurisdiction and circumstances.