By Daniel Staiger, CFP®, CRPC®. Financial Advisor.
Risk is an everyday part of life that we can’t avoid. There are small risks, like going for a walk without sunscreen, and big risks, like driving 130 miles per hour on a busy highway in the rain. Just like life, there are no guarantees in the world of finance. A successful financial strategy is one that balances risk and return appropriately to reach an ideal outcome. A financial risk isn’t just betting all your money on one horse or buying shady new cryptocurrencies. Here are a couple very common financial risks and what you can do to help protect yourself.
Losing a loved one can be devastating in and of itself, but its effects can be long-lasting if that loved one brought home a significant portion of the household income. In the United States, women in widowhood are one of the most vulnerable populations with high rates of poverty.1
While you or your partner may never slip into poverty, losing a breadwinner could mean severely downsizing your family’s lifestyle or completely changing your retirement plans. Whatever your situation is, having life and disability insurance coverage could help protect against the risk that a working spouse loses their life or becomes disabled and can no longer work.
This is probably what most people think of when they think of financial risk. They imagine bright-red-lined charts trending downward and traders on Wall Street scrambling to grab their belongings as they flee their offices. What the market decides to do is completely out of your control. You can expect fluctuations in the value of your investments to go up and down over time, but having the right mix of assets can help mitigate the fluctuations.
This mix of assets should also change and evolve over time to better suit your financial needs. For example, a 20-year-old investor can have assets with more volatility because they can wait for years for the markets to recover. However, a 70-year-old cannot have a lot of risky assets because they do not have time to wait for the markets to recover. As you age, switching over from riskier assets (like stocks) to something less risky (like bonds) can help hedge against market volatility in retirement.
Unlike many of our friends over in Europe and Canada, Americans are left to pay for their own healthcare, which can have devastating effects on people’s finances. The situation is so dire that about two-thirds of all personal bankruptcies in the U.S. are due to medical bills.2 Getting an emergency surgery or being diagnosed with cancer could cripple your retirement savings, so it’s critical to have the right mix of insurance products.
Dealing with illness is bad enough, worrying about your financial situation as you fight to save your own life can only make recovery more difficult. Having insurance products that provide additional coverage for accidents, hospitalizations, and expensive procedures could help mitigate the risk of your finances being ruined due to medical expenses.
Deciding what will happen with your assets after you are gone is an important component of a comprehensive financial plan. Everyone should have an estate plan including beneficiaries listed on their accounts and documents such as a will, living will, power of attorney, and healthcare proxy.
Without an estate plan, you could leave your family exposed to many legal and financial uncertainties after your passing. A plan can eliminate family disputes about how your assets should be divided up. It could also allow you to provide reasoning behind your decisions ahead of time and prevent future squabbles that could end in a messy and costly court battle. Planning ahead can also give you time to outline a wealth transfer strategy that minimizes the taxes you or your estate owes.
As a professional in your own field, you may not have time to understand the ins and outs of the financial world. With so many different tax laws and financial instruments to worry about, it’s easy to get confused or overwhelmed. But something as consequential as your finances requires the care and consideration of an experienced professional. At Matarazzo Staiger, we are committed to building confidence around your financial future by providing trusted advice and tailored solutions. If you want to take the first step toward realizing your financial potential, schedule a no-obligation introductory meeting by emailing me at daniel.staiger@raymondjames.com or calling (631) 319-6777.
1 https://link.springer.com/article/10.1007/s13524-020-00915-2
2https://spendmenot.com/blog/medical-bankruptcy-statistics/
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.
Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation.
Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.
