Financial Management: Introduction - Risk Management - Investment, Insurance, Commodities and Cash

Personally, I think Financial Management is a combination of Risk and Investment Management. Risk management help us to hedge the unexpected potential risk in our life. Investment Management, on the other hand, assists us get rid of being victim from inflation and subsequently grow wealth from it.

Risk Managment
There are three main types of unexpected potential risk in our life is Death, Accidents and Illness. Luckily, all of them can be hedged by buying a Personal Accident and Medicate Card Insurance. But please bear in mind that the total sum of payment for risk management should not more than 20% of your salary. Besides, the sum of insured should be based on each individual needs. For instance, Person A want to save 100K money for his son educational fee after 10years. To avoid those unexpected potential risk during these 10 years saving plan, Person XXX can buy total sum insured of 100K annually for death benefit to hedge the risk, which normally only cause few hundred annually. Another example is if Person XXX has a housing mortgage of 200K, he also better to buy a Personal Accident Insurance with total sum insured of at least 200K to avoid this mortgage will be a burden if unexpected potential risk happens. Again, yearly payment for such insurance normally only costs few hundreds.

Investment Management
After having a peace of mind from risk management to hedge those risks, we shall focus on our investment management to make our money "work" with us even we are sleeping. The most easy way to let our money earns money on behalf of us is "let" our money to banker so banker can "let" them to other people. However, the return is very low, and sometimes, the return even cannot overcome the effect from inflation.

In Investment Management, few important tools should be considered, that are, Stock Market, Commodities, Government Bond and Cash. Generally, an investor will allocate and organize his or her money in these four areas: Stock Market, Commodities, Government Bond and Cash. The ratio between these tools will be adjusted from time to time to optimise investment return.

For small capital case like me, I will only use two tools, that are, Stock Market and Cash to manage and grow my wealth. To way to manage my money can be as simple as - when the potential return from Stock market is not  more attractive, I will increase my Cash Ratio and vice versa. So, what is my Cash Ratio now? Hmmm... around 10 percent. But my Cash Ratio will always to be adjusted in such a way that I have another peace of mind in Investment Management.

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Written by: Xaivier Chia

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