Why Your Family Office Needs a Risk Management Plan Today
Stay on top of risk. Protect your wealth.
Everyone faces risks in their daily lives. This includes the wealth that you have worked hard to grow. No matter how strong a portfolio may be, there will always be a risk to face. Wealthy investors must remember to protect their private assets and fully equip themselves with a plan to combat the types of financial risk in the world.
It is important to stay proactive with your risk management planning. In this article, we cover what risks your family office may be facing. The best way to combat risk is by partnering with a team that is well versed in the numerous financial risks invoiced, and the perfect way to alleviate those risks. Unfortunately, there is not one risk management plan that can protect everyone. With proper guidance, you can work hand-in-hand with professionals craft a plan just for you.
When creating a risk management plan for a family office, it is essential to remember the structure of the family office. The risk management plan will need to capture the values of the family office.
Risk management can be applied to your personal finances, managing your business, and family investing. Get ahead of the risk. Contact Goldbach Capital to discover how you can reduce the risks your wealth faces.
Identifying the Risk
No investor is free from risk as there are many risks a portfolio can face. The best thing to do is prepare. During the planning process, family offices and advisors will create a risk management framework, beginning with risk measurement. Risk measurement includes identifying the risk and estimating and evaluating investment risks.
Below are common risks to combat:
- Liquidity risk– This type of risk is prevalent when products aren’t selling fast enough to cut losses.
- Credit risk or default risk– Credit risk occurs when those who borrow money are unable to pay back the loan. When they fail to repay the borrowed money, they go into default. This means investors are hit with decreased income or a rise in costs for collection.
- Asset-backed risk– When securities backed by assets become volatile if the securities change in value, it is experiencing the downfalls of asset-backed risk.
- Foreign investment risks– Investors that invest in foreign markets are opening themselves up to different economies. This can be very beneficial, but some risks come with investing in an economy that may experience political change, natural calamities, diplomatic changes, or economic conflicts.
- Equity risk– This is defined by volatile price changes of shares of stock.
After identifying the risk, predictions and evaluations are made to determine how big of a hit would occur if the risk becomes a reality. To calculate this, you will most likely need the help of a professional. A financial expert, such as the team of Goldbach Capital, can use statistical models to calculate the numbers.
Knowing what you are going up against will determine the strategy required to combat any risks associated to your financial strategy. Consider having a list on hand of what can happen when investing in essential assets, like human error, the health of the market, or any potential outside risks. While measuring risk a very involved process, it is vital. It allows you and your family office to create the proper infrastructure to fight investment risks effectively.
There are a few essential tips that any investor can follow that can help reduce some risks associated with investing wealth.
Do not invest without learning as much as you can about the investment. Falling into a scam or untrustworthy investment is easy, but it will not be as easy to recover. Your hard-earned wealth can take a big hit.
Read contracts carefully and make sure you, your family office, and your advisor fully understand what you are investing in and that everyone is on the same page. Not being thorough can make a big difference. By understanding the investment can help you avoid risk.
Take advice from investment websites books, articles, and the guidance of financial experts. By getting a grip on different kinds of investments, and the lay of the land, you can avoid getting burned by greed.
Further, it is never a bad idea to keep a portion of your wealth in case of an emergency. By saving a percentage of your monthly profits, it will be much easier to recover from a significant hit if a risk occurs.
At the end of the day, if all goes well, this can be extra money for retirement or something extra to pass down to heirs.
Another effective risk management strategy is investing in an insurance policy. When one invests in an insurance policy, the investor is protecting themselves from outside risks like crimes. A health insurance policy will guarantee savings when you aren’t spending too much on health care.
One of the easiest ways to protect your assets and investments from risk is to diversify your income. There is always the possibility that one of your sources of income may take a drastic hit. If you make all over your family investments into one sector, you are opening yourself up to an array of events and certain markets may not be as strong as others.
Goldbach Capital has developed strong expertise in risk management. All clients’ portfolios are managed according to predefined risk profiles, which are constantly monitored.
The procedures to ensure that portfolios conform with the required risk profiles have been defined based on the most recent and accurate requirements of the Swiss and international financial authorities.
Furthermore, as a fully independent company, Goldbach Capital relies on a network of first-class custodian banks, which all maintain efficient in-house risk management and compliance departments.
These custodian banks are subject to formal supervision by their local financial authorities. Goldbach Capital’s clients, therefore, benefit from complementary risk monitoring and compliance services, often in two different jurisdictions.