In finance, risk management is about identifying and analyzing the risk associated with an investment decision. Since all investments involve risk, risk management abounds in the world of finance. Risk management involves quantifying the potential for loss and then finding the appropriate balance between risk and performance.
Risk and Performance
There’s a reason it’s called risk management and not risk elimination. Risk isn’t necessarily bad. Risk and performance often go hand in hand. Incredibly high-performing investment strategies often come with considerably higher risk. For some investors, a high amount of risk may be acceptable. For example, high net worth investors looking to invest a small amount of their portfolio in a strategy may be able to handle the higher risk that comes with the potential for higher performance. On the other hand, someone who is approaching retirement and is looking for an investment strategy for their entire portfolio would be much better suited for a lower risk strategy.
Risk Management Strategies
Some risk management strategies can be incredibly complex, while others are basic principles of finance and investing that you are likely already aware of. Diversification is the most obvious example of basic risk management. The following are other examples of minimizing risk:
- Choosing bonds over stocks
- Choosing government bonds over corporate bonds
- Banks performing credit checks
A career in risk management can come with a lot of pressure. No matter how much research and analysis occurs, it’s impossible to know exactly what the market will do. Failing to accurately balance risk and performance can cause investors to lose large amounts of money. Inadequate risk management doesn’t just affect individual investors, it can also affect the market as a whole. For example, the subprime mortgage meltdown of 2007 rested upon risky investments packaged inappropriately. A lack of appropriate risk management throughout the financial industry led to a financial crash that brought economies all over the world down with it.
Salary and Education
According to Glassdoor, the average salary for a job in risk management is $70,549 per year. In order to get a job in risk management, there is no specific required degree, but it would be almost impossible to get a job without at least an undergraduate degree. An undergraduate degree in risk management or another finance-related field such as economics or business would be ideal. Advanced certifications or degrees such as an MBA or CFA are not required but are often beneficial.
Risk management is a large umbrella. Most roles in finance involve a risk management component. So, there is no one set career path. The key to moving up in risk management roles is the experience – you’ll need a track record. You also may start in more general asset management or research analysis, since all asset management involves risk management.
A career in risk management is often high-pressure but offers many options for career advancement. Risk management positions also typically come with an above-average salary.
Risk Related Courses
Risk Management Professional Certificate
Develop a comprehensive survey of the practice of Risk Management. The major types of risk are identified, risk management tools and techniques are reviewed and financial regulation is covered. Delegates will work through the annual risk report of a publicly-traded financial institution. A number of case studies are analyzed to illustrate key principles of risk measurement and management.
About The New York Institute of Finance
The New York Institute of Finance (NYIF) is a global leader in professional training for financial services and related industries. NYIF courses cover everything from investment banking, asset pricing, insurance and market structure to financial modeling, treasury operations, and accounting. The New York Institute of Finance has a faculty of industry leaders and offers a range of program delivery options, including self-study, online courses, and in-person classes. Founded by the New York Stock Exchange in 1922, NYIF has trained over 250,000 professionals online and in-class, in over 120 countries.
See all of NYIF’s training and qualifications here.