Personal Finance, Part 2 — Risks

Helping Institutions and Ordinary People Invest Better by Focusing on Risk Control

Posted on 3 November 20076 November 2007 by David Merkel

I view personal finance through the prism of risk management. What can go wrong? Here are many of the threats that the average person faces:

Die too soon
Bad health
Disability
Inflation/Deflation
Unemployment
Property & Liability losses
Live too long
Not earn enough on investments

This list is not exhaustive; perhaps you can think of more. Each one reflects an aspect of life that we don’t fully control. ? Some of them can be fully or partially hedged through insurance (1, 2, 3, 6, 7), some can be fully or partially hedged through investment policy (4, 8 ), and some can’t be hedged at all (5).? My next few articles in the series will deal with the hedgeable risks, and what reasonable strategies can be for dealing with each one.

2 thoughts on “Personal Finance, Part 2 — Risks”

Bond investor says:

4 November 2007 at 11:03 pm

Uh, David….

I’ve fortunately never had to use it, but doesn’t the government provide us with at least a short-term hedge against unemployment called “unemployment insurance”?

Also, for anyone who has recognized the need to save, I think 7 and 8 are the same thing.
pammysnyder says:

6 November 2007 at 3:16 pm

Dear Bond investor, 7 and 8 are not the same thing.
If I do not earn enough on my investments, I do not have to live a long life to have financial problems.

Comments are closed.

David Merkel is an investment professional, and like every investment professional, he makes mistakes. David encourages you to do your own independent "due diligence" on any idea that he talks about, because he could be wrong. Nothing written here, at RealMoney, Wall Street All-Stars, or anywhere else David may write is an invitation to buy or sell any particular security; at most, David is handing out educated guesses as to what the markets may do. David is fond of saying, "The markets always find a new way to make a fool out of you," and so he encourages caution in investing. Risk control wins the game in the long run, not bold moves. Even the best strategies of the past fail, sometimes spectacularly, when you least expect it. David is not immune to that, so please understand that any past success of his will be probably be followed by failures. Also, though David runs Aleph Investments, LLC, this blog is not a part of that business. This blog exists to educate investors, and give something back. It is not intended as advertisement for Aleph Investments; David is not soliciting business through it. When David, or a client of David's has an interest in a security mentioned, full disclosure will be given, as has been past practice for all that David does on the web. Disclosure is the breakfast of champions. Additionally, David may occasionally write about accounting, actuarial, insurance, and tax topics, but nothing written here, at RealMoney, or anywhere else is meant to be formal "advice" in those areas. Consult a reputable professional in those areas to get personal, tailored advice that meets the specialized needs that David can have no knowledge of.