Risk Management in Life and Investment

Dear readers,

Time-off Taken for Personal Commitment

I’m sorry for being away for quite some time. Personal commitments has been filling bulk of my life (and time) since last year September. Hence, I will have to attend to these important and urgent stuff. I have already drafted a few posts to what’s has been happening all these while, and I promise you it is going to be exciting. A sneak to what’s going to roll out: Boracay Review, ROM planning, HDB Reno ID review and many more! I hope these posts will aid you in planning your next trip, and for your big event.

Risk Management

As my life progresses, my responsibility gets a free upsize be it in work and personal commitment. And you possibly inferred from the sneak preview statement that, yes I am legally married (in law), but not in customary (traditional customary). Therefore, being a husband (in law), I have to take care of my beautiful wife, build up our nest, and grow our wealth. In order to have all these dreams and goals to be fulfilled , choices will have to be made in every decision juncture, and it does involves a certain risk (or opportunity cost) for every decision made and also not made.

All of us will probably be used to living with risk. For example, with recent aviation ill-fated events, it will still not stop most of us from flying. But it just goes to show that life cannot be calculated. You can call it a random world, where incident (good or bad) can just happen anytime. But this should not be an excuse for not having a crisis management plan. In other words, we should not be betting on plans to work all the time. There should be contingency plans ready to serve in those “what if” moment.

Therefore, I decided to read up about Risk Management on life and investment. During the learning journey, I came across some ideas and teaching are shared consistently by different mentors. So what are these common strategies?

1.  To Have a Margin of Safety

The concept Margin of safety should not be a stranger to those well versed in the financial world. However, this concept can also be used in many areas of our life. For example, when we are planning a travel trip, we would always carry extra clothes/cash with us, just in case we need it. Similarly, in work, when we engineered something, we always would cater extra allowance to ensure it will runs smoothly, same goes for resource planning.

Although to have a margin of safety involves a certain wastage/opportunity lost, we still need to plan in for this.  For example, in terms of investing, it occurred to me a couple of times for not entering the market even though it looks favourable as it has not reached my safety margin. Next moment, the stock rallies and on a path of no return. However, opportunities are aplenty, it takes discipline to stay on to your pre-defined level.

The advice is to define your safety margin and adhere to it strictly. By not risking too much, you are doing yourself a deed.

2. To Prepare for the Worst and Hope for the Best

Once we have the safety margin created, next we will need to plan for the unexpected. One classical example will be buying life insurance. With life insurance, we can allocate a certain portion of the risk to third party when life crisis struck on us. I believe when you buy insurance to plan for crisis, you will hope not to utilise the policy in the near future. I couldn’t emphasise enough the importance of having adequate coverage for yourself.

The advice is to buy ample insurance policies, within your means, to cater for different undesirable scenarios. 

3. Do Not Place All Your Eggs in One Basket

You would not want to count on just one chance to achieve your goals. In investing terms, investment gurus always indoctrinate diversification in their seminars. You don’t buy into just one asset or sector, and if any headwinds is to affect the sector, it could easily wipe out 20-30% of your portfolio. The same goes for career planning, skills can go obsolete with technological advances.One must continue to learn to stay relevant to the market needs. You cannot just rely on one skill to get far in the fast-paced world.

The advice is to plant your seeds widely by practising diversification in investing. For career building, consistently strive for upgrading to remain useful and avoid the risk of being obsolete.

Conclusion

As one’s life commitment grows, risk management is imperative to manage unforeseen scenarios to safeguard the future. By having a proper safety margin, protection and careful planning of resources, we could mitigate the risk and keep damage to the very minimal.

Last of all, I would like to leave you reader a quote by Warren Buffet,

Risk comes from not knowing what you’re doing.

Thanks for reading! 🙂