What Came First, The Chicken or the Egg?

You’re probably wondering what the title of this piece has to do with financial and retirement planning? Very little actually, it was just easier than titling a piece What Should Come First, Risk Management or Investment Allocation and Security Selection!

Actually, there is an important correlation between the two. As the title implies, there is a question about what should take the lead when one begins the financial and retirement planning process.

Let me start by talking a little about how the financial planning process should work. Most financial professionals offer some form of financial and/or retirement planning services. Unfortunately, most planning meetings quickly evolve into an investment management discussion and glance over the many risks outside of those presented by the economy and the stock market. The reality is there are many risks beyond the economy and stock market that can decimate a well thought out and well-funded plan as quickly as a collapsing stock market.

Now don’t get me wrong, asset allocation, security selection, and money management are extremely important. However, most advisors want to begin and end the financial planning process there.

I have a different philosophy. I believe that the fear of loss is always a greater motivator than the opportunity for gain. I also believe that without solid risk management to secure and protect your assets, successful investing only gives you more to lose. So, in my practice, relationships begin with a detailed discussion of risk management so that we can avoid any “train-wrecks” and plan for these risks rather than react to them.

What risks can possibly be worse than losing money in a stock market meltdown? How about a large liability lawsuit from an accident or death on rental property you own, an unexpected illness or disability requiring extended, skilled medical care, a tragic death from an accident or short-term illness, your teenage driver is at fault in a serious automobile accident and the victim and/or the victim’s family sues the owner of the automobile-you!

So even though stock market risk and volatility are something that must be addressed, my belief is that non-investment risk poses an equally challenging, and devastating set of risks to your future.

Here are some things to ponder:

• How is rental property titled?
• Is your rental property located in a state other than where you live?
• Do you have an umbrella insurance policy?
• What is your plan to cover the cost of skilled medical care brought on by an accident or illness?
• How will a disability impact your income?
• How will your family be supported if you tragically die?
• If you have teenage drivers, how are your cars titled and insured?

Don’t assume these tragedies happen to other people. Isn’t it better to plan than to react? While it is natural for us to react to unexpected situations, it is far more effective and beneficial to have a well-thought-out plan in place beforehand.

Tragic events can occur at any time and in any place, and their impact can be devastating. By proactively planning for such events, we can minimize the potential damage, protect lives, and ensure a more efficient response.

Here are a few reasons why proactive planning is crucial:

Preparedness: Planning allows us to identify potential risks and vulnerabilities, enabling us to take preventive measures and mitigate the impact of tragic events.

• Swift Response: With a well-defined plan, we can respond quickly and effectively, minimizing confusion and ensuring the safety of individuals involved.
• Resource Allocation: Proactive planning helps us allocate resources efficiently, ensuring that the necessary support and assistance are readily available when needed.
• Communication: Having a plan in place facilitates clear and timely communication, both internally and externally, enabling us to provide accurate information and guidance during challenging times.

By investing time and effort into proactive planning, we hope to avoid the chaos and confusion these tragic events could cause for ourselves and our families.

For more information or to schedule a confidential conversation about these and other risks and challenges you may be facing, please contact us. Our initial conversation is always free of any cost, pressure, and obligation.

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