Which of the following best defines risk management?

Risk management is best defined as the process of identifying and controlling threats that could potentially impact an organization or investment. This involves recognizing various types of risks, such as financial risks, operational risks, compliance risks, and strategic risks, and implementing strategies to mitigate these risks. By systematically assessing vulnerabilities and establishing controls to manage them, organizations can protect their assets, ensure stability, and create a more secure environment for decision-making.

In the context of investment and finance, effective risk management is crucial for maintaining and growing value over time. It allows businesses to anticipate potential problems and take proactive measures to minimize losses, thus enhancing overall performance.

Other options do not capture the essence of risk management effectively. The creation of investment portfolios focuses on asset allocation rather than directly on understanding risks. Maximizing company earnings relates to performance outcomes, while assessing market trends is more about market analysis than risk identification and management. Therefore, the chosen answer encompasses the core principles and goals of risk management.