I attended a zoom webinar led by Allison Schrager, a retirement economist. It was a thought provoking subject on "how to take risks in a changing economy". Allison correctly pointed out that most people worry about risks. I've address the topic many times in my discussion with clients as well as in my blog and other areas.
Allison pointed out that she believes that we are actually safer now than we have been at any time. A pretty bold statement, considering all the challenges we as Americans have faced over the last three years. Her premise is not to be scoffed at. She states that we have more tools now to deal with risks than we ever have had before.
There are a couple of issues she rightly raises:
* A changing risk profile of the world
* That we do have more tools, but we don't know how to use them
* Technology advances that enable us to accomplish much, and how to use them to address the subject of risk
Wealth is a good way to deal with the discussion of risk as well as technology
Allison proceeds to discuss that what an individual must do is combine the tools and technology to create the right strategy that addresses the risk question.
The first step in accomplishing this is by acknowledge with complete transparency. all the risks that we deal with on a daily basis.
In this case let's discuss it in terms of retirement risks:
How long will I live?
Where will the markets go?
Will I outlive my nest-egg?
How will I pay for medical care if I incur a serious health care issue or nursing home care?
Obviously there is a long list of uncertainties that can either plague us, or we can address them in the best way we can.
Four Steps to Dealing with Risks:
1. Think about diversification. We have heard the old analogy, "don't put all your eggs in one basket". That spreading your investments amongst a group of investments is a good idea.
2. Risk management. Using a hedging strategy. Example the 60/40 mix. 60% invested in equities (stocks), and 40% invested in income (bonds). Balancing between greater risks (the equity) portion with the lesser risks (income) portion.
3. Uncertainty - It's the things you never saw coming. It means you need to be flexible. You need to have cash reserves in order to pay your bills, those emergencies and unplanned expenses.
4. It's about finding the middle ground
It's combining the risks factors with the right strategy to maximize the return on your investment dollars, yet, taking in account the risks in doing so.
That's where working with a financial advisor is recommended. Their expertise, experience, and knowledge will help guide you in making the right decision for you. In my discussion with my clients, I share with them that I use a wide variety of advisors to assist me in accomplishing my goals in life. Everything from my accountant to do my taxes to my local trusted mechanic to do repairs on my car. I am willing to pay someone for something I cannot or will not do for myself. I cannot be the jack of all trades, master of none. My specialty is financial advice.
Our work is to gather all your financial information, discuss your goals and objectives, discuss risks, what are your concerns, it's pretty in-depth! Then, we create a strategy that sets a course for accomplishing those goals and objectives. I've addressed that in the previous blog entry, "Your Portfolio Took a Hit, What Should You Do Now?"
We will always have risks in our entire life. It's addressing them, using the tools, technology and professional advice that is available to create strategies in dealing with the risks and creating a meaningful life.