EP Wealth advisors can help you understand some risks related to market, credit, liquidity, operations, and legal matters. Contact us for personal or business financial planning guidance.
No one wants to lose money because of a wrong personal or business decision. Yet, everyone with a dollar to their name is susceptible to some kind of risk. Last year, America’s billionaires lost $660 billion collectively.
Fortunately, you don’t have to be Elon Musk or Jeff Bezos to work with a financial planner who can help you make informed decisions. The blanket term “financial risk” covers many different categories, which we’ll outline below.
Generally speaking, most financial risk can be caused by movements in the market—which, in turn, are affected by a variety of factors. Some market movers include:
At some point, some of us will need to borrow capital to grow our investments. Maybe you need a home equity loan for improvements that may increase your property’s market value or a juice loan to fund a business expansion. The need for funding creates a financial risk for investors and stakeholders.
Credit risks include:
Liquidity means you have sufficient cash flow on hand as it’s needed — to cover day to day expenses and emergencies, pay off debts, make investments, etc.
Liquidity is a big consideration when choosing where to store your wealth. For instance, having $50,000 in your savings account offers much greater liquidity than holding $50,000 in real estate or a business, which can take time to convert into readily available capital resources.
Additionally, when dealing with assets of limited liquidity, executing transactions at equitable prices can pose challenges. For instance, there may be insufficient prospective buyers for your sales offerings, leading to asset liquidity risk. Conversely, you might encounter scarcity in potential sellers for items you aim to purchase, resulting in funding liquidity risk.
In business, lack of controls, flawed business models, and mismanagement can lead to operational risk — and almost certainly financial devastation for the company.
Ideally, businesses will take a number of proactive steps that limit the potential for operational failures — like appointing experienced managers, investing in the latest software, training staff adequately to avoid human error, implementing internal controls, or routinely auditing to protect against fraud.
Whether in your personal or business affairs, lawsuits can put your finances at risk. A legal risk may be associated with negligence or a deliberate failure to comply with client obligations.
Worst of all, a high-profile lawsuit can jeopardize your reputation and future earning potential. For this reason, some companies and high-net-worth individuals have lawyers on hand to mitigate their legal liabilities proactively.
Aside from working closely with a lawyer, you’ll want to have someone in your corner with expertise in financial planning and/or business planning.
Unlike governments, you can’t just issue bonds to fund your operations. At EP Wealth, we can help you analyze risks associated with long-term investments through:
No one is immune to financial risk. The best we can do is to manage it — thoughtfully, routinely, and as objectively as possible.
While many complex forces are at work — some of which are beyond any one person’s control — working with a financial advisor puts you in the driver’s seat, so you can be proactive and make informed decisions based on your needs and risk tolerance level. Contact our advisors at EP Wealth to get the conversation started today.