Building your portfolio by buying securities imposes a lot of risks into your business. Portfolio Risk management packs your strengths and weaknesses in determining new opportunities when making local or international investments as well as how your company can cope up with the risks that come with growth. Portfolio risk management aims to maximize the profit while providing possible solution in decreasing the risks. There are many reasons why you need to use a portfolio risk management system when investing and these threats can be put into three categories.
Threats To Credit –Sometimes, making a decision that you think is beneficial to your credit score might prove critical in the long run. Increasing levels of national debts also raises the possibility of your credit score to drop significantly. New financial regulations can also increase or decrease the value of your credits. Financial regulations such as the Dodd Frank Act are aimed to address the risks that come with investments and protect the interest of investors. Since your credit score is based on the country’s economic growth, any changes that affect the economic stability can pose risks to your credits. With the help of a portfolio risk management system, balancing your credits will be easier.
Political Threats – An unstable government decrease confidence of investors. This type of threat proves to be one of the most influential when it comes to the growth of the economy. A corrupt and unstable government may impose financial regulations that only cater to the interest of politicians. Emerging companies may not survive abrupt changes in the financial market thus contributing to the early shutdowns and filing of bankruptcy. Since investors are not protected, their assets are exposed to unwanted external factors that undermine their position in all asset classes. By using a portfolio risk management system, you will be able to assess the impact of political threats to your investments helping you make sound decisions and formulate efficient strategies.
Security Threats – Terrorism is becoming a major concern in the global market. It does not necessarily mean that your business is a direct target of a terrorist act but it can affect it indirectly through devaluation of asset prices and interruptions in the flow of processes as well as increasing the risks of losing foreign assets. Kidnap for ransoms also pose threats of revealing company secrets. Aside from the financial loss, kidnapped victims and their families undergo severe emotional problems resulting in mismanagement due to a restless state of mind. Portfolio risk management system can help you formulate decisions to lessen the impact of terrorism.