How The Rich Manage Risk
The "ultra" rich individual has very special risk circumstances, many of which we will likely never experience, such as risk from endorsements, huge investments, directorship positions, multiple homes, exotic autos, and boat or other things we can't fathom. However, there are some strategies that SMART ultra-rich do use to protect their fortunes. They use them, and you should too!
1. ALWAYS look at the risk potential of everything you do. What good is a huge financial return if it puts your entire financial well being at risk? What good is a "relaxing vacation" if the location puts your life at risk? What good is a thrill ride in a hang glider if you have a high chance of a severe accident? Although it may seem troublesome to always be looking at the risk of life's events, it's far less trouble than trying to repair something that has gone wrong that you could have prevented or reduced.
2. KNOW where your existing risks are. Understand them. If you don't know what they are or where they are, you simply can't address them. Knowledge is the first element of protection.
3. MINIMIZE the risks you have. Use safe practices. Avoid risky activities. Watch your back. After a while, just like looking for risk in your life which becomes second nature, minimizing risk can also become nearly automatic, once it's a habit.
4. PROTECT yourself from the risk that you can't eliminate. There are risks in your life that you simply can't eliminate. Let's face it, for example ... we are all going to die someday ... and we can't eliminate that event, but we can protect our families (and estates) from the negative financial factor which could happen when we die, by acknowledging that event and then preparing for it financially.
This last step has some unique elements with the rich. Unlike most of us, they utilize their consultants effectively and for their benefit. When it comes to risk management, they know (and you should too...) that risk protection should be developed with a knowledgeable individual who understands YOUR situation as well as what tools and products are available. It might be a team of individuals who work together, but it certainly isn't a cadre of various individual representatives who are not working together for you, who are essentially competing with each other for your business. Simply said, you will not be well served by such a situation.
These four steps are identical to the WhiteCoat Risk Management ARP plan for risk management and reduction. Read more here about the ARP plan.
An optimal plan is to have an individual or team who looks at your WHOLE situation, constructing the best protection plan that is comprehensive yet efficient and financially responsible. It's important to remember that the true cost of risk management isn't just the insurance premium. Financial losses that you may incur because of insufficient coverage would likely eclipse the cost of protective insurance.
WhiteCoat Risk Management provides these articles to help improve general risk awareness in all aspects of your life. It is not responsible for any actions you take or fail to take regarding any aspect of your financial planning or risk management. This article is provided for information purposes and is not intended to provide individualized advice. You alone are responsible for your financial decisions.
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