This is Jonathan Clements, director of financial education for Creative Planning.
When financial experts talk about risk, normally they’re focused on a single notion: how much a portfolio bounces up and down in price. But in truth, risk takes many different forms and those different risks should be addressed in a good financial plan.
There are obvious risks. Risks like a family’s main breadwinner dying or suffering a disability, which is why you buy life and disability insurance. But there are also more obscure risks that you need to address.
What about risks that aren’t so obvious? Let’s say you have big investments in commercial residential real estate. How would you cope if there was an economic downturn and you couldn’t find tenants? What if somebody was injured at your home and sued you? What if there was an accounting scandal at your employer and suddenly you found yourself not only out of work, but holding a fist full of worthless shares? What if your business partner died suddenly and suddenly you are faced with this conundrum?
Either you have to come up with millions of dollars to buy out your partner’s family or you could lose control of the business. By thinking about these risks ahead of time and taking the necessary, precautionary steps, we can limit the potential financial fallout. Reme