Week 2 QRTR 2

Ways and Means to
Minimize Investment
Risks
Risk is defined as a chance of loss.
In finance, it is the chance that
the actual return would be
different from the expected return
on an investment.
There are two fundamental types of risks:
1. Systematic Risk – has effects that are wider in
scope. It is almost impossible for an investor to
avoid this type of risk. Examples are: natural
disaster- a massive earthquake, a major political
event- a coup de’ etat or a covid19 pandemic .
2. Unsystematic Risk – also referred to as specific
risk, which affects only a small number of assets.
Examples would be a firm whose employees went
on strike or a major stockholder getting involved
in a crime or scandal.
Investors resort to diversification which
is a risk management technique wherein
an investor includes a wide variety of
assets or investment products in his
portfolio of investments to minimize or
protect themselves from unsystematic
risk.
Ways and Means to Minimize Investment Risks
1. Determination of tolerance to different kinds

of risk
Understanding the type of risk, or the

combination of types of risk, is essential in
reducing those risks.
Two factors that can help determine the risk

tolerance are:
a. Net worth – is assets minus liabilities.
b. Risk capital – is money that, if lost on an
investment, won’t impact the financial position
and lifestyle.
If there is high net worth and substantial risk

capital, the risk tolerance is higher. But if the net
worth and risk capital is modest or not much, it’s
probable to be better off with conservative, low-
risk investments.
2. Conducting due diligence

This means making research about the investment
instruments, checking out the investment’s
history, earnings’ growth, management team and
debt load. This information can be compared with
other similar investment products and to other
assets in investment portfolio.
3. Diversification of investment portfolio

Diversification is a risk management strategy of
combining a variety of assets to reduce overall
risk in an investment portfolio. One of its purpose
is portfolio risk management.
This lowers investments’ volatility as changes in

market prices of different investments can
happen at different time intervals. This result in
a more balance risk and return or risk is spread
over a variety of products.
4. Monitoring of investments
Regular reallocation of resources is necessary for control
purposes. Proper allocation of investments depends on
such factors as age, investment period and investment
temperament.
It is necessary to evaluate holdings at least once a year
to assess whether there is a need to buy or sell assets
to bring back the portfolio to proper asset allocation.
 Ways and Means to Minimize Investment Risks
 5.Taking advantage of government guaranteed investment

products
 Itis very safe to invest in an instrument which is guaranteed
by the government like Treasury bonds. These investments
are fully backed by the Philippine government aside from an
insurance from the Philippine Deposit Insurance Corporation
(PDIC).
 Inaddition, holding investment until its maturity is better
considering market risks and penalties except for a secured
recovery of principal and interest.
 Investment Risk
 Asdepicted by the image, explain what you understand about
the concept of diversification and its importance in making
investment decisions.
 Apply It in Real Life
 Before making the final decision to invest or not in a company

or in a community (like, starting a business), one of the most
important considerations for investors is the presence of
sources of growth. In the Philippines, the two most obvious
sources of growth for the past two decades are remittances
from OFWs and the presence of BPO (business process
outsourcing) companies. Investors adequate sources of growth
to progress. When they see these sources of growth, their
confidence level to invest increases.
Apply It in Real Life
 Youare an investment adviser. A businessman sought your
help on what investment is ideal in his community. To
formulate the best advice, you are to consider the sources of
growth within his community and take note of the possible
investments that he can venture in. Prepare a report
presenting the potential investments which possess sources of
growth. Then make sure to explain the gains and profit that
the businessman can acquire in each of the investments that
you will suggest.
Apply It in Real Life
Provide at least three potential investments that the

businessman can consider. Make sure to present the possible
gains that the businessman can acquire. Prepare a
comprehensive report with graphic organizers (if necessary) to
support your data. Your report must be detailed, accurate,
organized, logical, and feasible.

Week 2 QRTR 2

Uploaded by

Copyright:

Available Formats

Week 2 QRTR 2

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Week 2 QRTR 2

Uploaded by

Copyright:

Available Formats

Ways and Means to

1. Determination of tolerance to different kinds

Understanding the type of risk, or the

Two factors that can help determine the risk

If there is high net worth and substantial risk

2. Conducting due diligence

3. Diversification of investment portfolio

This lowers investments’ volatility as changes in

 5.Taking advantage of government guaranteed investment

 Before making the final decision to invest or not in a company

Provide at least three potential investments that the

You might also like