Most people associate risk with their portfolio.  How much “risk tolerance” do you have?  What type of downside risk are you willing to take for the possibility of greater returns?

 While certainly, risk tolerance within your portfolio management is important, there are many other types of risks that one may have in their life.  A good financial plan will illustrate these risks and create strategies to mitigate them.

 Sometimes (but not always) insurance is a method of mitigating risk.   This is how some insurance brokers hang out their financial planning shingle to sell insurance: if you have young children and are not independently wealthy, then you need life insurance; if you are the primary income earner in the family and do not have enough resources to cover your expenses should you become disabled, then you need disability insurance.

 However, most people have many different types of risks in their life.  A good financial plan will identify these risks, make the clients aware that they exist and make recommendations on how best to approach and protect against them.  Nonetheless, very few people have unlimited time and money so priorities need to be set. What can you accomplish and by when?

 There may be risks you never thought about until someone points them out to you.  For example:-

 What is the risk that something happens to your parents – whether one set or possibly 4 sets if there has been divorce and re-marriage – and you will be asked to assist with their care? Care of parents involves financial, emotional and physical stress.  As you may be entering into your own independent living stage, your parents’ situation may disrupt your own retirement plans.

 What is the risk that your mortgage or home equity loan (or both) drastically increases?  Is your budget adequately prepared?

 What is the risk of one or both of you losing your job?  Do you have savings? Do you have a network in place to help you land your next position?

 What is the risk of a fire or burglary in your home? Have you properly insured your current values?

 What is the risk of inflation affecting your lifestyle?  You may spend as much time in retirement as you spent working.  Have you taken account of these possibilities in your estimates for income needs?

 What is the risk of divorce in your family? Do you know where your assets are and what liabilities you have?

 What happens to your assets if you die without a will?

 What happens to your affairs, family and pets if you are seriously injured and in the hospital? Do you have a health care proxy? Is it on file with your primary care doctor? Do you have a durable power of attorney in place?

 These are just several examples of the risks that a comprehensive financial plan will uncover. These are often difficult issues to address and it helps to have a neutral party leading the discussion.  Just identifying these risks and discussing strategies can start to bring relief to a family; implementing the plan is then the first step towards taking control of your financial future and mitigating the risk in your life.