Risk Management

Risk Management

December 04, 2023

Risk management is a broad topic and requires understanding of what risks you are trying to control and how to best manage them. There are several common risks that people need to be aware of and address appropriate in order to properly manage them for their individual circumstances. Below are just a few of these risks and quick methods to handle them. It is important to note that a good financial advisor can help you identify which risks are relevant to your situation and also can help guide you on the best ways to manage them.

Longevity Risk – the risk of overusing/outliving the assets that you have accumulated during your working years. To help mitigate this risk, you need to manage your investments properly and also be thoughtful of how much you withdraw from your portfolio each year.

Market (Investment) Risk – the risk of having negative investment results from your portfolio. This is especially important if that performance can cause damage to your short-term or mid-term goals. One of the best methods to try to manage this risk is to have appropriate diversification in your portfolio.

Liquidity Risk – the risk of not having access to cash on a short-term basis if you need it. One way to manage this risk is to always have a solid savings account that is easily accessible for you in case of emergency.

Mortality Risk - something that no one likes think about, but what would happen to loved ones that rely on you if something were to happen to you? One of the most common ways to manage this risk is with life insurance. That can be a reasonable strategy as long as you are using the right type of life insurance. I am personally leery of many forms.

Sequence of Returns Risk – the risk of having to withdraw funds from your portfolio when assets are down due to poor market performance. Doing so can cause long-term harm to your financial plan for years to come. Proper diversification of your assets and smart asset location can help manage this risk.