Final answer:
The basic strategies to control risk include diversification, hedging, and insurance, which are crucial for financial planning and risk management in investments.
Step-by-step explanation:
Controlling risk is a fundamental aspect of financial planning and investment strategy. The basic strategies used to control risk include diversification, hedging, and insurance.
Diversification is a strategy that involves spreading investments across various financial assets, sectors, or markets to reduce exposure to any single asset or risk. By doing so, an investor can potentially reduce the volatility of their portfolio since different assets often perform differently under varying market conditions.
Hedging refers to taking an investment position intended to offset potential losses that may be incurred by another investment. This can involve using financial instruments like options, futures, or derivatives to protect against adverse price movements.
Insurance is a risk management strategy that involves transferring the financial consequences of certain risks to an insurance company in exchange for a premium. This can include various types of coverage such as life, health, property, and liability insurance.
Analyzing the risk involved in different types of financial assets, understanding important considerations to investors in the financial market, and assessing risk before making an investment are crucial steps for developing a sound financial plan. Also, being informed about different types of accounts and their associated costs, along with understanding the importance of early investment and the benefits of risk management strategies like insurance, are essential for becoming informed decision makers in our economy.