Disclaimer: this blog is to illustrate how to handle finance risk and is NOT a reflection of my appreciation for fried turkey.
Two weeks ago I gave a presentation to the Rainier Beach Merchants Association about the six aspects of financial planning. One aspect often overlooked is risk management. One obvious solution is to buy insurance to address risk. However, risk can be addressed beyond either buying or not buying insurance. There are four things you can do to address risk and I used the example of deep frying a turkey during Thanksgiving to illustrate.
This week there will be thousands of people who will deep fry a turkey. Deep frying a turkey in the kitchen introduces a risk that the kitchen will catch on fire and possibly burn the house down. Many people know this and proceed to use the deep fryer in the kitchen anyway. That is assuming the risk. Some people will move their cooking operations out to the garage. Yes, the house could still could burn down but the possibility is substantially reduced but not completely eliminated by deep frying the turkey in the garage. That is reducing the risk. What if you decide to move your deep frying cooking to your In-laws house? That is transferring the risk. Again, buying insurance is a common way to transfer risk. And lastly, you can simply buy a deep fried turkey from a major grocery store. That eliminates the possibility of burning down your house using a deep fryer.
There are many risks when it comes to financial planning, it’s important to understand each risk and actively decide how to deal with it. Some risks are worth ensuring others are not but it’s important to fully evaluate the impact. At RainierView Advisors, we help our clients understand and address risks to their financial plan in a variety of ways. We also are not compensated by selling insurance so we feel our position is aligned with our clients to address risk objectively.
So to summarize, risk is embedded in many of the decisons we make but we have more choices than to accept or completely eliminate risk. We can:
1. Accept risk
2. Reduce risk
3. Transfer risk
4. Eliminate risk
If you would like to explore ways to address seen and unseen risks in your financial life, set up a risk-free session with us today.