The scariest risks are risks that you don’t even know exist. It’s virtually impossible to manage risk that you can’t clearly define. As an asset protection law firm, we’ve become pretty attuned to legal risk, and we’ve developed methods to eliminate or, at least, curb it significantly. The problem is that legal risk is probably not the greatest risk to your assets right now.
Defining Other Types of Risk
In the annual letter that all Lodmell & Lodmell clients receive, we outlined three broad categories of risk that could very well pose a greater threat to your assets than legal attack. Those risks are:
- Institutional Risk — Remember Bear Stearns and Lehman Brothers in 2008? How about MFGlobal in 2011? Major institutions have failed, so it can certainly happen again. Have you done your homework to decide for yourself whether or not your bank or financial institution is safe? If you haven’t you’re in the realm of really scary risk, because you don’t even know how exposed you are.
- Market Risk — This is the risk of investments going down, whether due to micro (i.e. industry or company specific issues) or macro (the economy as a whole) conditions. Anyone who has ever bought stocks or bonds has consciously taken market risk.
- Currency Risk — Yes, holding currency is risky, even if you hold it in 100 dollar bills in your home safe. The reason is that the amount of goods of services that currency can buy fluctuates with the market and with the relative value of your currency to other currencies in the world. That means holding currency is only safe if you’re holding the right currency!
More on Market Risk
Many professionals follow advice that traditionally has worked very well–they buy municipal bonds and hold them until maturity. That strategy has worked well for many people over many years, and it might continue to work. My goal is simply to challenge you to think: Does it seem to you that we are experiencing traditional market conditions? Does the extreme volatility in the markets concern you at all, not to mention the market rattling news that comes out of Europe every week, the filing of the largest municipal bankruptcy in history, and rampant fraud in the financial services industry? This is the one question you should be asking: Given all the known and unknown risks in the market, am I being appropriately compensated for participating in the game? If the answer is “no,” then consider sitting it out with a substantial portion of your assets. That’s asset protection 101. If you don’t know the rules (risks), don’t play. Then, with whatever portion of your portfolio you do want to invest, seek the advice of professionals. If you have questions on how to do that, contact Lodmell & Lodmell today.