Financial risk is a condition that arises as a result of changes, both internally and externally, that can be financially detrimental to a person, group, or company.

The losses caused by this financial risk can be very diverse. These include loss of assets, experiencing large amounts of losses, disrupted cash flow or cash flow, and others.

Types of Financial Risk

After you know that a financial risk is a form of loss that has an impact on finances, then let's understand the types of financial risks that exist.

General Financial Risk

In general, financial risk is divided into two, namely systematic financial risk and non-systematic financial risk.

1. Systematic Risk

It is a financial risk that cannot be predicted or avoided due to several factors. For example, a pandemic, political climate, and so on that result in inflation, increased interest rates, and increased market volatility.

2. Non-systematic risk

Is a financial risk that befalls a person, organization, or group due to an event. For example loss, illness, or death.

 As a financial advisory firm we time to time do risk profiling of clients to take care of systematic risk. In this stage of the financial planning process, we reviews all of the data and relevant documents, and, if necessary, requests from the client missing data needed to develop the financial plan. Once all the information is available, we analyze it to identify strengths and weaknesses in the client’s total financial situation with respect to the achievement of stated goals. We might find some areas that need immediate attention, such as the adequacy of the emergency fund or the existence of risk exposures that are not adequately managed. Identifying existing or potential problems that can negatively affect the client’s ability to achieve objectives is an important part of financial planning.

RISK PROFILING

The risk profiling questionnaire is meant to measure the risk appetite as well as time horizon in investing. The questionnaire is designed to show which type of investment approach may suit the client. Each answer would be given a point. The total score would suggest the appropriate risk profile for the client.

On the basis of risk category following indicative asset allocation can be suggest to the clients: