The 5 principles of risk management include:
1. Risk Identification: The first principle is to identify and understand the various risks associated with investments. This involves assessing both internal and external factors that could impact investment performance, such as market volatility, economic conditions, regulatory changes, and company-specific risks.
2. Risk Assessment: Once risks are identified, the next principle is to assess and quantify their potential impact. By assessing risks, investors can prioritize and allocate resources effectively, considering risk-reward trade-offs and risk tolerance.
3. Risk Mitigation: After assessing risks, the principle of risk mitigation focuses on implementing strategies to reduce, control, or transfer risks. The goal is to minimize potential losses and protect investments from adverse events.
4. Monitoring and Review: Effective risk management requires ongoing monitoring and review of investment portfolios. By monitoring investments, investors can identify emerging risks, make timely adjustments, and ensure risk management strategies remain aligned with investment objectives.
5. Continuous Improvement: The final principle emphasizes the importance of continuous improvement in risk management. This involves learning from past experiences, evaluating the outcomes of risk management strategies, and implementing adjustments or refinements as needed.