By Susan Hirshman
Protecting your portfolio from sabotage
The most common response to the question “What are the biggest risks to your financial portfolio?” usually has something to do with market volatility – i.e. the up and down movements of the stock market.
Would your answer be different? Most likely not, because market risk is what people discuss at cocktail parties, and what business new shows, magazines and newspapers focus their attention on. Unfortunately, market risk is not the only risk that needs to be managed. There are 5 other risks to one’s portfolio that must be taken into consideration to ensure that you protect you and your family from financial sabotage.
The five other risk’s I call the 5 D’s.
Most people find the thought of one or more of these 5 D’s depressing and painful and avoid it like the plague. Like so many things in life, ignoring something does not mean that it won’t happen. So instead of becoming a victim to your fear, become a person of strength and power by addressing these risks and giving both you and your family the gift of financial security and peace of mind (in times of acute stress.)
Let’s briefly look at each of these 5D’s.
Disability -If you became disabled for an extended period of time during your and could not work what would happen to your financial security? The risk of disability does not get the respect it deserves. Few people realize that the chances of becoming disabled are greater than dying prematurely. In fact, it has been reported that by age 42, it is 4 times more likely that you will become seriously disabled than that you will die prematurely during your working years
Dementia – If your physical or mental health deteriorates so that it prevents your from performing the ordinary tasks of life, such as bathing, dressing, eating etc will you have a choice as to how you will be taken care of? This is especially important for women, since studies show that women face a greater likelihood than men of needing long-term care.
Death – If something were to happen to you during your working years would you want to replace that income in order for your family to maintain their lifestyle and fund their long-term goals? The risk of premature death for those in their typical working years, ages 25-64, is still significant – a greater than 1-in-6 chance for males and a 1-in-9 chance for females of not surviving from age 25 to normal retirement age. These odds are much higher than most Americans perceive,
Destruction –Catastrophic events like fires, floods, tornadoes etc are not under our control and we can’t predict when they will occur. But when they do, they can be disastrous to your property. For most of us, our home is our most valuable assets and studies show that most people are underinsured. Are you?
Divorce – It happens. It’s hard to think about it going in but unfortunately the divorce rate in the US is still at 50% and the average length of first marriages that end in divorce is 7 years. You must take this into consideration before, during and after your marriages.
Ignorance in any or all of these cases is far from bliss; it is financial suicide. Know what you are up against and have the right tools in place to protect your finances from sabotage. Your investments plan means nothing if your “risks of life” are not managed and protected well. Don’t let yourself be a victim.
Susan Hirshman, CFA, CPA, CFP,