What is the difference between ‘money management’ and ‘risk management’?

[VinnyBauer]

Any ideas about the difference between ‘money management’ and ‘risk management’ is highly appreciated. Thanks in advance.

[rasar]

I'll take a stab at this.

Money management refers to the allocation of one's cash across various, diverse holdings such as stocks, bonds, mutual funds, real estate, cash, etc. The primary goal of money management would be to maximize profits by moving the allocation around as circumstances demanded. ETF Sector rotation, allocation strategies (e.g. 60/40 stock/bond), etc. are examples.

Risk management is a practice whose primary purpose is to mitigate losses, that is applicable across any discipline - money management being one of them. (Risk management is also applicable, for example, to Information Technology, or to business in general). In the case of money management, one could do so in various ways. Specific steps could be taken to shuffle one's holdings such that the allocation to riskier assets is smaller compared to safer ones. Alternatively, one could also achieve the same goal by using hedging strategies. A simple example would be buying protective put options against stock holdings to guard against stock price declines.

[CharLter]

Good to know!