What does the term ‘risk management’ encompass in wealth management?

The term 'risk management' in wealth management primarily involves aligning investment strategies to an individual's risk tolerance. This means understanding an investor's capacity and willingness to endure losses and volatility in their investment portfolio, which is essential for crafting a tailored investment strategy. By assessing factors such as the investor's financial goals, time horizon, and personal circumstances, wealth managers can create a diversified investment approach that balances potential returns while adhering to the investor's comfort level regarding risk.

This alignment ensures that investment decisions reflect not just the potential for returns, but also the investor's ability to handle fluctuations in the market. Effective risk management involves a comprehensive strategy that can adapt to changing market conditions and personal circumstances, allowing for a thoughtful approach rather than a one-size-fits-all solution. This ultimately helps in achieving financial goals without exposing the investor to undue stress from risk exposure.