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Risk Identification

The document outlines various types of risks involved in personal finance and financial planning, categorizing them into those within and outside of individual control. It emphasizes the importance of risk management in protecting wealth and building financial security through disciplined financial habits, education, and adequate insurance. Additionally, it discusses external factors such as market fluctuations, interest rates, and political risks that can impact financial stability.

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3 views12 pages

Risk Identification

The document outlines various types of risks involved in personal finance and financial planning, categorizing them into those within and outside of individual control. It emphasizes the importance of risk management in protecting wealth and building financial security through disciplined financial habits, education, and adequate insurance. Additionally, it discusses external factors such as market fluctuations, interest rates, and political risks that can impact financial stability.

Uploaded by

freesoul6800
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

HS 504 Introduction to Personal Finance & Portfolio Management

Dr. Satvasheel Powar


2

Risk
Management

Knowledge, Awareness
Preference and Needs
& Access

Financial Security

Cash & Credit Wealth


Management Accumulation

Economy & Politics


3
4

What are the

Types of Risks involved

In Financial Planning?

Risk = Possibility of financial loss or disruption due to uncertain events


Types of risks in Personal Finance

• Income Risk
• Health Risk
• Asset Risk
• Liability/Debt Risk Risk Identi cation Matrix
• Market & Investment Risk
Probability Impact Action

Low Low Ignore

High Low Reduce

Low High Insure

High High Avoid


fi
6

Returns build wealth.


Risk management protects
wealth.
Types of risks: Within our control
• Financial Discipline Risk:
- Proper budgeting, saving, and avoiding unnecessary debt.
- Maintain disciplined financial habits.

• Behavioral Risk:
- Make informed and rational decisions.
- Avoid emotional reactions to market fluctuations.

• Financial Education Risk:


- Gain knowledge about personal finance and investments.
- Continuously improve financial literacy.
Types of risks: Within our control

• Insurance Coverage Risk:


- Sought for adequate insurance (health, life, etc.).
- Properly assess and purchase insurance coverage.

• Emergency Fund Risk:


- Build and maintain an emergency fund.

• Investment Allocation Risk:


- Diversify investments across various asset classes.
- Allocate assets based on risk tolerance and goals.
Types of risks: Out of our control

• Market Risk:
- External factors influence fluctuations in financial markets.

• Interest Rate Risks


- Central bank policies impact interest rates, affecting investments.

• In ation Risk:
- Economic factors contribute to inflation, affecting purchasing power.
- Macroeconomic forces determine inflation rates.
fl
Types of risks: Out of our control
• Currency Risk:
- Global economic factors influence exchange rate fluctuations.
- Currency risk is tied to international economic conditions.

• Income Risk:
- Job loss or income reduction can result from factors like economic shifts.
- Economic conditions and industry changes affect income stability.

• Political and Regulatory Risk:


- Government policies and geopolitical events can impact financial
markets.
- Individuals can't control changes in regulations or political decisions.
11
12

High

Reduce Avoid
Earthquake in
e.g. Illness, minor
earthquake-prone area,
accident, etc
flood in red zones
Frequency

Ignore Insure
Laptop damage, Major accident,
Low electronic appliance hospitalization, theft,
damage fire, etc

Low Consequences High

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