Financial Risk Management For Dummies

Chapter 1

Living with Risk

In This Chapter

Exploring the idea of risk

Managing financial risk

Informing people about risk

Life is risk, and risk is life. Nobody knows what tomorrow may bring. As the poet Robert Burns famously put it, ‘The best-laid schemes o’ mice an’ men, gang aft agley, an’ lea’e us nought but grief an’ pain, for promis’d joy!’ (Roughly translated, Burns warns that careful plans can come to nothing.)

While most of us instinctively first think about bad risk, good surprises happen as well. ‘Fortune favours the bold,’ we are told, and, ‘Sometimes things just go your way.’ In fact, risk is more than just sometimes good, it is essential. As another saying goes, ‘The only place with people and no risk is a graveyard.’ Religions, philosophies and especially superstitions are deeply rooted in ideas about risk.

My topic is managing risk, not risk itself, which means that I don’t cover all the risks you can’t control – the sun going supernova tomorrow or being diagnosed with a genetic heart condition, for examples. Also, my topic is financial risk, so I don’t talk about risks that aren’t priced in the financial markets. That still leaves me with a large topic, but one I ...