Risk. The word often causes people to pause and consider the context when they hear or read it. The Merriam Webster Dictionary defines risk the potential for injury or loss. We are exposed to risk every day; at home, at work, on our way to and from work, in our recreational pursuits, in our financial affairs and with our property and possessions. Risk is hard to avoid in our daily lives. It comes with the territory. We need to be aware of it, plan for it, manage our lives and businesses so as to minimize it where feasible and, insure against the loss it may present where appropriate.
The financial consequences of some risks are relatively minor. Or, they can be catastrophic to an individual or household’s overall financial well-being. Dropping a looney down a storm drain while pulling change from a pocket can be frustrating but for most people it is largely an inconvenience. On the other hand, losing one’s job or suffering a severe disability event could be financially devastating depending on the stage in life it occurs and/or the financial capacity of the household. I was reading an article over the weekend that highlighted the plight of a household where both breadwinners worked for the U.K. travel conglomerate, Thomas Cook. Thomas Cook flied for bankruptcy last week, leading to virtually all the company’s employees losing their jobs and pay cheques. In the article, one of the household breadwinners was selling her wedding dress to raise cash to make ends meet… Closer to home, an individual was on his way home to Brandon from work one evening a couple weeks back when he was involved in a serious vehicle accident which has left him paralyzed from the chest down. He is a father of three children and the primary earner in the household…
Onetime Canadian cannabis stock darling, CannTrust Holdings has gone from “hero to almost zero” in lightning speed over the last couple months, after contravening federal regulations and losing its license to ship cannabis. Investors and employees are left wondering what happened. The overall financial losses have been staggering for many of those involved and piles on to the woes being experienced by companies and investors in the whole cannabis investment sector.
A high-profile Canadian business and reality-TV star was at the centre of a fatal boat accident in Ontario’s Muskoka lake district this past summer. Two people died in the accident, including a mother of three children. While the story is still fluid and now before the courts, I am drawn to think about the potential for financial liability that might emerge, depending on how the situation plays out… never mind the sad loss of life that occurred, surely changing the lives of a number of people forever.
These are only a few topical and current stories highlighting risk. It’s actually quite simple… If we need to work to generate income, if we need to rely on our financial assets for income, now or in the future or, if we own property and possessions, we are exposed to risk. One can “whistle and look the other way” when the subject comes up or they can stop and take time to identify the risks they are exposed to, assess the possible impact and develop an action plan for minimizing and managing the risks, and transferring financial risk through insurance ownership where sensible.
At 360 Private Wealth Management, we help client households identify risks, measure the potential impacts and develop strategies for managing risks and, when it makes sense, guiding households in transferring the financial risk through the purchase of insurance. In line with our view about Wealth and the other Natural Wealth Process planning elements, we think risk can be divided into three categories; Person Risk, Portfolio Risk and Possession Risk.
Person Risk involves risks associated to the persons in a household or business. If you must work to generate all or a portion of the cash flow you need to maintain your lifestyle, you are exposed to Person Risk. If you rely on or will rely on the income generated by financial assets, including a privately-owned business, you are exposed to Portfolio Risk. And, if you own possessions like homes, vehicles, recreational properties or vehicles, you are exposed to Possession Risk.
We will highlight each of these categories in coming weeks and provide some financial life planning recommendations to help you quantify the risk and develop strategies for addressing the risks you face in your overall financial life plan.
In the meantime, as always, if you would like a deeper risk assessment in your situation, feel free, any time to reach out to us for a discussion.
David J. Luke, CFP, RFP, CLU, CH.F.C., CIM | Financial Advisor
360 Private Wealth Management | Manulife Securities Incorporated
Unit 1 – 25 Scurfield Boulevard, Winnipeg, MB R3Y 1G4
Main Office 204.925.5868 | Direct 204.925.2073| Fax 204.925.2263 | Toll Free 844.688.3656