January 24, 2024
Protect Your Assets Now by Gauging Your Risks

by Denis Kleinfeld

Financial survivability does not happen without planning for possible losses as well as the hope for future gains. Every day brings in a world of risk and uncertainty. And opportunities. Planning is what helps make better decisions which relate risk and return.

Basically, with any financial decision there is a chance of a good outcome and the probability of something going terribly wrong.

A company stocks up inventory for the expected holiday sales, but lightning strikes and the warehouse burns down. The retain stores don’t have goodies to sell. Every day the price of just common equities goes up and down on not much more than some belief promoted by the media indicates that some future outcome becomes uncertain.

Most people with some modicum or even extreme wealth have their asset values tied into operating businesses, real estate, or passive investments like funds and other collective investment structures. These represent operating risks which can grow to be highly successful or with one occurrence get wiped out. The belief in gains minimizes considering the operating risks. Even a small amount of affirmative planning can go a long way in mitigating the possibility of that lurking uncertain loss.

The critical analysis in planning to protect assets from loss is based on two points: First, what is the likelihood of loss; and Second, what will be the severity or size of the loss should it occur. These two together are the key factors in anticipating risk. Determining that will then give you some measure as to how much effort must go into the planning process and decisions on loss avoidance, mitigation, shifting, self-absorbed risk.

If you do not plan for protecting assets from exposures or perils, they do not go away. Sometimes businesses or investments do not even realize that they are exposed. Those are the situations called involuntary risk retention. You can plan for the known but not much can be done about unknown unknown problems.

Risk avoidance is also a possibility but that generally means that you just do not do something. No losses but no gains other. A neurosurgeon worried about malpractice can just stop surgeries. Airlines that are concerned about crashes can decide to stop flying. Of course, this sort of decision has serious drawbacks but for some owners of certain activities to be protected it is best just to stop.

Planning to control risks is among the two most common methods to protect wealth. People clean up dirty workspaces, have wires safely tucked away, put in security cameras or guards, have guard rails around machinery and so on. Keep the office kitchen floor dry in front of the coffee machine. For some risks it is better to segregate them from other activities. Regularly, companies hold inventory or processes in physically separated warehouses.

Risk transfer is by far the most common type of asset protection that people generally use. Every day, people drive their cars because they have insurance, buy a house, higher employees, officers, and the board of directors, provide for the risks of life, health, disability and nearly everything else that goes on in the 21st century world. Insurance is what makes it possible for international business and financial transactions to be carried forward. Basically, commercial insurance is the secret that makes the modern economic and political world possible. It dwarfs the international banking industry.

In today’s world, the threat variables are significantly higher (or it seems to me) than in previous years. To be successful financially and personally surviving the vast amount local and global uncertainty start planning for techniques and methods to protect yourself and your assets now.