Issue time
3:38 pm , by
CTreit
Category:
Uncategorized
Obvious and Hidden Financial Risks
July 1st, 2010Imagine living a risk-free life! You know exactly what tomorrow will bring, what next year will bring, what the next decade will bring. How much would you enjoy life without any surprises at all?
I know that I would not like it at all. Risk and uncertainty makes life into the great experience that it is. I don’t ever want to know what the future holds for me because such certainty would take a lot of pleasure away from my life. Life would be very boring. Neither can I see how I could enjoy any one of my accomplishments when I already know in advance what they will be.
We take all kinds of risks in our everyday lives — getting behind the wheel or being someone else’s passenger, trying a new sport or not doing enough exercise. We also take financial risks, even if one refrains from “playing the markets“.
If you invest in stocks or bonds, you assume the risk that the asset you buy may decrease in price (”market risk“), but of course, you hope that instead the asset price will increase in the long run. When thinking about long-term savings strategies, aside from market risk, you will also need to take into account other risks, such as the risk that you will not reach your financial goals (that you don’t save enough to finance your dreams), purchasing power risk (losing money over time because you don’t keep up with inflation), and longevity risk (which plays a role in retirement planning.)
This post is the introduction to a series on financial risks. We will discuss market risk, purchasing power risk, longevity risk, and the risk that you will not reach your financial goals. Stay tuned!
No matter which way you slice it,, you will always assume some financial risk in the above list. We can’t know the future, but we do have to plan for it. The trick is to design a savings plan that gives you the right combination of exposure to various risks so that you are comfortable with your decisions.
Would you really want to know the future? And if you did, how much do you think you would enjoy life?
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[...] is the third post in a series on “obvious and hidden financial risks.” (To read the other posts, please go to “market risk” and “purchasing power [...]
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