Preparing for potentially catastrophic situations is critical for you and your loved ones. The risk of some situations, such as unanticipated disability/death or long-term care, may need to be transferred to an insurance company. Other financial objectives may be better addressed by proper asset and income allocation. Developing a risk managment philosophy that integrates insurance and investments will help you with funding decisions.
1) Shortfall or Liquidity Risk- the possibility you will not have enough to meet your short, medium, and long-term goals
2) Human Capital Risk- the possibility that your future earning capacity will not adequately fund your lifestyle
3) Special Situation Risk- the possibility you will not be able to fund a special need for your children, their education, wedding; or any other large purchase
4) Market or Principal Risk- where a downturn negatively impacts the value of an investment
5) Inflation or Purchasing Power Risk- avoiding risk where you may be too conservatively invested
6) Interest Rate Risk- how interest rates change, and how these changes affect your investments
7) Timing Risk- the possibility that you might buy an investment high and/or sell an investment low
8) Taxes and Regulations- no matter how you make money, the government wants its share; but, if you follow the rules, there are many ways you can plan to keep more for yourself, your family, and perhaps your favorite charity
9) Longevity Risk- the possibility that you might outlive your income and your assets; the only risk that multiplies the impact of every other financial risk you take!