When I was younger, we entertained ourselves in various ways. We actually played outside in the hot sun, breathing in billions of particles of pollen from grass, flowers, and crops, and don’t forget the pollutants in the air. We didn’t care! On some days, the air was so filthy you could see it. But we came inside when the sun went down or when it was cold and rainy. We didn’t have an Xbox; we didn’t get online and scour the internet; we played games!
I liked to play Life, Monopoly, Trouble and RISK. It’s interesting how most of them were actually teaching each of us life lessons. All of them involved rolling the dice to decide your fate – whether you were working toward retirement in Life, trying to become a real estate tycoon in Monopoly, using position strategy in Trouble, or taking over the globe in Risk – all of those principles carry over to our everyday lives.
So today, let’s focus on one principle that causes some individuals to have ulcers, lose their hair, have anxiety, or lose sleep.
Risk is the reality that someone or something you care about could be taken away. We all seek to transfer that possibility, whether in part or whole. Without even thinking about it, every one of you currently possesses a mechanism to mitigate your risk in some form or fashion. Let’s examine a few.
Insurance
• Life Insurance:
Provides financial support to beneficiaries in the event of the insured person's death. As fiduciaries, we believe the primary function of life insurance is to provide liquidity or cash flow.
• Health Insurance:
Covers medical expenses and provides financial protection against health-related risks. Long-term Care can protect your assets from being eaten away by the high cost of nursing care.
• Property and Casualty Insurance:
Protects against damage to property or liability for injuries to others.
By paying regular premiums, individuals transfer the financial burden of potential losses to insurance companies, ensuring they are not left shouldering the entire risk.
Diversification of Investments
Investors can mitigate risks associated with market fluctuations by diversifying their investment portfolios. By spreading investments across different asset classes, individuals can lessen the impact of poor performance in a specific sector or industry.
Limiting Liability
Choosing business structures that limit personal liability, such as forming a limited liability company (LLC) or corporation, shields personal assets from business-related risks. This separation ensures that business debts and obligations don't compromise an individual's personal finances.
If you intend to pursue a secure financial future, you must adopt a holistic approach to risk management. Through a combination of insurance, contractual agreements, financial instruments, and strategic partnerships, individuals can transfer, mitigate, and navigate risks effectively. It's essential to tailor these strategies to individual circumstances and seek professional advice to ensure a robust risk management plan that stands the test of time. By implementing these strategies, individuals can fortify their financial foundation and confidently face the uncertainties of life.
We all face some form of risk. The question is, have you diminished all of the risk factors you can, or are you still rolling the dice?
Financial Enhancement Group is an SEC Registered Investment Advisor.
