An important part of financial planning is the management of risk associated with one’s assets and overall financial wellbeing. While building your financial plan and setting your financial priorities, there are a number of strategies you can take to help minimize risk and protect your future self. We’ve outlined different risk management strategies below – be sure to address these and any concerns with your financial planner as you build out your personal plan.
1. Plan for the Future
One large risk in financial planning is not being as forward-thinking as you should. Some investors tend to be very focused on the here and now of investing and portfolio building, but don’t give enough thought to their long-term needs and goals. Building a financial plan and asset portfolio that can grow with you and change as your needs change is critical to long term success. A financial planner can be especially helpful in this arena as they have seen numerous plans and circumstances and can give input on the best way to plan ahead.
2. Consider Non-Financial Needs
Similarly, your planning should encompass more than your financial needs. It can be confusing and emotionally difficult to look ahead to a time when you may need more care medically or have different needs than you do now but these steps will be important as you build out your financial future. Might you need long term care or a different living arrangement? Will you need additional coverage or to support family members after you pass? Preparing for these questions and contingencies can help structure a financial plan that supports you and your family as you age.
3. Strategic Asset Allocation
First and foremost, your financial plan will include a variety of assets and investments that carry with them different levels of risk. It’s important to keep an eye on your overall risk profile as it relates to your particular tolerance for risk, your current and future financial needs, and your place in your financial timeline. As you age, you may want to move your assets into a less risky bracket or consider a different makeup when it comes to your portfolio. Your portfolio should certainly evolve over time as your risk tolerance and goals change.
4. Incorporate Coverage
In line with non-financial needs, it’s important to think about how insurance and coverage come into play when planning for the future. Your needs may change when it comes to health insurance or you may need to purchase supplemental long term care insurance. Your life insurance should be updated periodically to stay current and useful, and you may want to consider additional liability, property, or casualty coverage. All of these items can be considered in line with your financial planning and as part of your risk assessment.
Like many other parts of the financial plan, everyone will have different risks to consider when setting their financial priorities and building out their portfolio. It’s important to consider your current and future risks when building or updating your financial plan and to include your financial planner as part of these discussions to ensure that you and your family are protected as much as possible.