What is the primary focus of risk management in financial planning?

The primary focus of risk management in financial planning is to identify, assess, and prioritize risks to minimize their impact on financial goals. This process involves understanding the various risks that can affect an individual's or a business's financial health, such as market fluctuations, inflation, interest rate changes, and unforeseen personal circumstances like illness or job loss. By effectively identifying and evaluating these risks, financial planners can develop strategies to mitigate potential negative effects, ensuring that clients can still achieve their financial objectives even in the face of uncertainty.

This approach is proactive, aiming to prepare for risks rather than trying to eliminate them entirely, which is neither feasible nor practical in most cases. The goal is to create a balanced financial plan that accounts for potential risks while pursuing appropriate returns on investments. Instead of focusing solely on maximizing returns or directing investment choices, effective risk management considers the broader picture of financial stability and security.