Money Management VS Risk Management: Which One Prevails?

Management Of Assets

As your net worth grows it’s crucial to find a way to manage all of your assets and cash, as well as mitigate the risk associated. Otherwise, it can become a complex problem to solve later on.

It may already be obvious, but staying on top of all of your finances is essential to long-term success. We need to first understand some fundamentals to grasp this concept.

Money Management

The process of simply managing funds is often complex to many, hence why people tend to work with financial advisors to find the best strategy at their current income level. However, it’s possible to save yourself some money by doing it yourself through personal finance or investing applications.

Without money management, you may find yourself struggling to keep up with the swings in the market. This is what makes investors feel nauseous, the allocation of a specific stock may be too large or potentially adding risk to their portfolio.

A great strategy is to outline the parameters at which you want to hold specific stocks in your portfolio. For example, not allowing a position to reach over 10% of the portfolio allocation, selling shares of a speculative stock at a specific percent gain, etc. Some investors might advocate for single-digit percent per holding in their portfolio or trade, depending on their financial goals.

Although these are just simple examples of strategies, it’s best not to overcomplicate them as you can confuse yourself if you forget the strategy you put in place.

Risk Management

Managing the risk in your finances and investment portfolio is paramount. Without utilizing risk management, you could accidentally expose yourself to unwanted volatility and uncertainty.

Identifying risk is not that difficult either, essentially it’s anything that makes you feel uneasy. If your allocation in your portfolio for a specific stock is too high, then it’s easy to add to other positions to narrow that percent. You can also sell, but if your goal is to invest for the long term, adding to other holdings may be a better strategy.

Another way to mitigate risks is to set stop-losses on more volatile speculative plays that don’t fit a long-term investment focus. This financial tool essentially sells the stock at a specific price so no further capital can be lost in the trade.

Some investors don’t mind added risk as they are looking at a long time horizon, hence they have the patience to wait for the volatility storms to pass that coincide with more risky investment choices.

Utilizing Both

Both of these strategies can be utilized to propel your portfolio to new heights. The main ingredient is time. Time needs to be spent to make sure that you understand how much money is invested while understanding the risk at hand.

Every investor has different strategies, some like growth, others like value. Some like dividends, some don’t. What matters is what you can personally handle in terms of volatility and risk. By managing your money in your portfolio properly, you can appropriately adjust these positions to maximize your returns.

Closing Thoughts

Managing your funds in your portfolio is quite simple. By staying up to date, checking up on the various companies and funds you’re invested in, you can feel more comfortable. If anything falls out of place, it can always be readjusted to better suit your investment strategy and goals.

Overall, managing money and risk while investing in the stock market can be easy if you follow the simple methods and strategies provided in this article. It doesn’t need to be overcomplicated, neither does it require prior knowledge to succeed. It’s best to build your investment strategy and portfolio around what suits your style the most.

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Author’s Insight

This is not intended to be investment advice. As always do your own due diligence and invest based upon your own risk appetite and consult your own financial advisor for the right investment strategy for your specific needs.

Action: If you want to read a great book on money management check out Andrea Unger’s book you can get it HERE. Its not a hard read and he breaks down money management and different techniques along with the pros and cons of each.

Money Management is what sets beginner traders and seasoned traders or investors apart. Speculative traders YOLO their portfolio. Its a big risk big reward position, however more strike out and blow up their account oppose to hitting consistent homeruns that make up for the losses. Simple action to take is to determine your risk tolerance and implement a simple money management strategy. For example what has worked for me in the past was creating a budget for investing. and as a part of that budget I put small money management techniques into place to help control my emotions while investing.

I did things like set aside a portion of my income to be invested and in the beginning I was allocating 50% of that portion set aside to be invested in speculative (can be read risky) investments. And I told myself that it was money that is to be risked and great risk of loss was possible. So when investments didn’t pan out it didn’t kill my trading spirit. However, when it did pan out I would take my profits as income and same rules apply for those funds because now they are classified as income and they get divided according to my budget.

Management of risk is more of managing or understanding your emotional capacity for gain and loss in the market, once you have an idea where you are simple money management strategies can help you become profitable quicker. Strategies can be as simple I only risk 5% of my account on 1 trade and trade no more than 2 trades a month. Money management will help you preserve capital for long term use. Investing is a marathon not a sprint…that’s day trading. More on that in the future.


Andre Mitchell
Andre Mitchell

Andre Has been trading financial markets for 5+ years. Has consistently grown small account sizes to medium sizes. Andre is a long term income investor that primarily operates in the stock options market and loves sharing his insight and experience with people who love investing and growing their financial wealth.

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