By John Corron
Risk. When you read that word do you get nervous? Maybe some of you get excited – ready to face it head-on. Or, some of you might be crying just thinking about it. Well, regardless of your feelings toward it – risk is everywhere.
Risk manifests itself in the puddle your child mistakenly left on that bathroom floor, the smartphone screen of the person driving in your direction, the passion for thrill-seeking adventures and the uncertain ebbs and flows of business and the economy.
Whether you’re dealing with physical, mental, spiritual or financial health, risk has a way of exposing weaknesses or oversights throughout every facet of our lives.
Good financial advisors recognize that managing financial risk is essential for helping clients build sustainable long-term financial plans. Having a wide-ranging discussion with your financial planner about how you live your life, the activities you enjoy and taking an inventory of the factors that could derail your quest to achieve your goals is certainly time very well spent.
You may have to use creativity and imagination to think about both high and low probability risks to your financial plan, but you may be surprised to learn about how much can be done to deal with even the most unlikely risks that are relevant to you.
If the impact of the risk can be imagined, it can be planned for, and potentially minimized to protect your financial well-being and your ability to achieve your financial goals.
A few of the major uncontrollable risk factors to be considered with your financial advisor include:
Hereditary health conditions are not altogether avoidable, but hopefully can be treated. Either way, it’s imperative to plan for this possibility. Start by being aware of your family’s health history.
Mother Nature and Natural Disasters
Unless you live in a secure bunker, there is no avoiding the aftermath of an event that you, your family or property are exposed to.
Maybe not for bunker dwellers, but for most everyone else, living in society exposes everyone to the many other people in it, along with their distractions, self-interest and occasional lack of concern for the impact of their decisions on other humans.
Direction of Financial Markets
You do your best to navigate the ups and downs of markets and impacts to your savings and investments, but eliminating rises and falls in asset prices is not a winnable game.
International Business Cycles
Quite simply, the economic and business ups and downs impact your ability to maintain adequate and sustainable employment.
These are risks that cannot be eliminated in a financial plan, but they can be carefully planned for and negative impacts can be minimized as much as possible. Some insurers will take on a few of these risks for you while you will have to consciously manage other risks as best you can.
As you know, a few are inevitable, but building reserves to withstand the impact of an event can lessen the blow to your livelihood and financial goals. A major responsibility that financial advisors assume in working with clients is highlighting the most relevant and significant risks they face and measuring potential impact on their lives.
The risks may not be obvious in your day-to-day living, but identifying where you can proactively plan for and control risk is an important exercise for your financial plan.
We may not want to go so far as to call some risks “controllable,” but they are more easily planned-for and therefore give you some measure of control.
Significant Illness or Disability
Because a majority of people generally experience good health, thinking about the risk to their standard of living from a disability or major illness or injury is not typically top-of-mind. I know it isn’t pleasant to think about, but illness is part of the human experience and worth considering as inevitably declining health or a health scare will impact almost everyone at some point.
Planning for your passing can be a long and gradual process with plenty of time to make adjustments – if you live deep into old age. For the less fortunate part of the population who experience an unexpected and early demise, the aftermath can be catastrophic for those they leave behind. Discuss the financial impacts of these scenarios with your financial advisor.
However, death doesn’t only impact your loved ones financially – also discuss the emotional toll that an early death of a loved one could have on surviving family members.
No Written Estate Documents
In situations where a disability or death occurs unexpectedly, having wishes and instructions specified in estate documents can keep the settlement of your affairs out of the court system and save valuable time, emotional energy and resources for your beneficiaries and next of kin.
Working through the potential impact of risks to livelihoods and families is a big part of a financial advisor’s job. Exploring options, weighing costs and trade-offs and mitigating financial risk are essential elements of a sustainable long-term care plan.
While reducing and eliminating risk in a financial plan is never free and rarely completely finished, risk mitigation can be significantly less expensive – monetarily and emotionally – with proper foresight and planning.
Working with an advisor or planner to determine what the right balance of risk and cost in your financial plan provides you the opportunity to take control of the risks you face before disruption occurs.
Being proactive in managing risk can have a significant positive impact on the sustainability of your financial plan. To learn more about what is involved in a comprehensive risk assessment and building strategies for addressing the risk in your financial life, contact me