Nobody likes surprises (unless they come with a room of balloons and a 3-foot chocolate fudge birthday cake).
The surprises that involve money, the kind that undo years of careful planning, are the ones we are really afraid of!
That’s why investment risk management isn’t just for the overly cautious among us; it’s for anyone who is actively trying to maximise their wealth without that awful heart-sinking feeling any time the markets decide to shift about.
Throughout 2025, we have seen plenty of investors shifting their focus, not attempting to outrun headlines but aiming to keep nice and steady as they move through.
This is super smart. When markets are unpredictable (and this does tend to be the case more often than not), winning means staying invested, focused and protecting the progress you’ve already made.
Let’s Look at the Types of Investment Risks
Risk is just part of investing; there is no way around that fact. But not all risks are the same.
Let’s start by lifting the lid on the different kinds of risk that can sneak into an investment portfolio when you least expect it:
- Market risk: This is the big one. It’s the possibility that your investments drop in value because of changes in the economy, interest rates, or just general market jitters. It’s a bit like sailing in open water. Sometimes the weather turns and you get a big gust of wind!
- Credit risk: If you’ve ever loaned money and worried you might not get it back, you’ll understand this. In investing, it’s the chance that a bond issuer or borrower doesn’t pay you back.
- Inflation risk: Even when your investments are growing, if inflation is growing faster, you might still be losing out in real terms. Your money is technically growing, but it’s not buying you as much as it could.
- Liquidity risk: This one crops up when you need to get your hands on your money quickly, but it’s tied up in something that can’t easily be sold without taking a hit. Think property, certain private investments, or niche funds.
- Concentration risk: All your eggs, one basket. If you’re heavily invested in one area, one downturn can have a much bigger impact.
Once you know the risks, you can work out how to manage them – no need for panic, just good planning.
Risk Mitigation Strategies
Now for the sunshine and daisies! Okay, maybe not that lovely. But these mitigation strategies are ways you can plan to avoid those big, bad risks.
Here are some time-tested strategies that help investors stay the course.
Diversification
The old saying still holds: don’t put all your eggs in one basket! By spreading investments across different asset types, sectors, and geographies, you reduce the impact of any single setback. Diversification doesn’t eliminate risk, but it helps smooth the ride and reduce reliance on any one outcome.
Hedging
This is about balance, not betting. Some investors use specific tools, like options or funds that move differently to the rest of the market, to offset potential losses. It’s not a strategy for everyone, and it comes with costs and complexity, but in the right hands, it can be a helpful shield.
Stop-loss orders
These are instructions to automatically sell an investment if it drops below a certain point. They’re designed to limit losses, but they also come with risks, especially in volatile markets where short-term dips can trigger a sale before prices bounce back. They’re a tool, not a strategy in themselves.
Rebalancing
Over time, different parts of your portfolio grow at different rates. Rebalancing is the simple process of bringing everything back in line with your original plan. It helps keep your risk levels steady and your strategy consistent, and avoids overexposure to assets that have performed well recently but may now carry more risk.
Holding a cash buffer
While cash can’t deliver high returns, having a reserve can protect you from having to sell investments at a loss when you need funds. It also gives you flexibility to act when opportunities arise, or to hold steady when the unexpected happens.
Understanding Your Risk Tolerance
Risk management has a lot to do with numbers, yes, but it also has a whole lot to do with how you feel, emotionally.
We are only human! Which means personal comfort levels can change; something that’s just as important as your financial goals.
Just have a little word with yourself and ask:
Would it be too overwhelming if my investments dropped by 10%? Would that make me panic sell? Or would I be ok?
How long have I planned my investment timeframe to last?
What are my priorities? Stability? Or is it growth?
What financial pressures, if any, do I have to consider?
The right answer to these questions? There isn’t one! What really matters is your own personal mindset, then aligning your portfolio to match that. This way, you are locked and loaded to deal with sticking to your guns if the markets wobble.
You wouldn’t think it, but this is an element of investing that a lot of seasoned investors skip. But it really can be the difference between staying the course and panicking.
If you’re reading this and thinking, “I have not thought about this before”, then now might be a brilliant time to start.
How IFP Can Help
Here at Informed Financial Planning, we specialise in helping people like you make these big decisions in a way that makes you feel confident, even in those inevitable, uncertain times!
Your goal could be retirement-related, you could be aiming to support family, or you could be planning your own legacy. We will help you build this strategy up so that it properly reflects your ambitions and your lifestyle.
Here’s how we support our clients:
- Clarity: We explain risks in real terms, not financial jargon. You’ll always know what you’re invested in, and why.
- Confidence: We help you understand how much risk you’re really taking, and whether that’s still right for where you are in life.
- Continuity: We regularly review your portfolio with you, adjusting only when needed, and never in reaction to short-term noise.
- Calm: When markets turn or headlines panic, you’ll know we’re in your corner. No rash decisions, no guesswork, just steady, informed advice.
For us, risk management isn’t a once-a-year tick-box exercise. It’s an ongoing part of the relationship we build with you, giving you peace of mind to focus on life, not your portfolio.
Take the First Step
If you’re unsure where your risk tolerance really sits, or whether your current investments still suit your comfort level, we can help.
Start by taking our quick risk tolerance questionnaire, which you can download here.
It’s a simple way to understand how much risk you’re really comfortable with and whether your current strategy still fits.
Once you’ve got your results, get in touch and let us know, we’d be happy to talk them through with you, clearly, calmly, and in plain English. Just mention that you’ve completed the questionnaire when you reach out. It’s a great starting point for making sure your investments reflect who you are and where you’re going, not just what the market’s doing this week.
