No investment is free of risk even though most people believe that some savings and investment vehicles are.  Most people think of risk only in terms of the risk of loss of principal.  Without good financial training, most people do not understand or appreciate the concept of interest rate risk, liquidity risk, inflation risk, regulatory risk, unsystematic risk, and a plethora of others.  People that think that U.S. Treasury securities and FDIC Insured bank accounts are risk free are likely to make very harmful errors trying to plan their financial future on their own.  As a minimum, a good understanding of the risks mentioned above is crucial to an intelligent allocation of assets and appropriate selection of investments.


Most mainstream financial planners claim to analyze a new client’s “risk tolerance” and base their investment suggestions on meeting that “risk tolerance”, whatever that means.  In reality, extensive research on the habits of individual investors has shown that people tend to change their “risk tolerance” as market and economic conditions change.  When the economy is booming, unemployment is low, and the stock market is rising, people tend to overestimate their “risk tolerance” and claim that they can accept “some risk” in their portfolio of investments.   Yet time and time again,when the economy weakens and the markets turn downward, millions of investors forget what they put on the form for their “risk tolerance” and proceed to sell significant portions of their investments in panic mode.  Over the last 50 years, there have been 16 years during which the S&P 500, representing the most widely watched stock market indicator, has dropped more than 12%.  The average drop during these 16 “bear” markets has been more than 22%, with six of those years being more than 25%.  Most people do not have the “risk tolerance” to tolerate an average loss of 22% every 3 years, or more than 25% loss on an average of every 8 years.  But this only represents market risk, and most investors take the worst action at the worst time in the face of this kind of risk and uncertainty.


 But, what if an investor could look at a well diversified portfolio, update all of the holdings to their current value, and project, for any year in the future, what the portfolio would look like for different assumed values of gain or loss in the stock market.  That alone, would greatly reduce the likelihood of “panic” selling decimating an otherwise good investment strategy, when just riding through the storm is all that is required.   That is something that Futureproof Finances does for its clients.  However, more importantly, Futureproof Finances recommends an array of low risk, often guaranteed investments to ameliorate the risks of the stock market, while keeping a substantial portion of the upside potential of the stock market.  Guaranteed investments such as commodity or market linked certificates of deposits (CD’s) , insurance company guaranteed structured settlements, real estate investments either through limited partnerships or real estate investment trusts, permanent life insurance, variable and index annuities with guaranteed principal and guaranteed lifetime income, are just some of the ways that a portfolio of stock and bonds can be risk balanced, to protect the assets, protect the buying power, and protect the lifestyle of clients.   The analysis tools used by Futureproof Finances, tailored to each individual client, and transferred to the client’s own computer allows each client to have the peace of mind to make the best investment choices in the face of the wide variety of risks and uncertainties in our 21st Century world.​

Financial Risk and the Planning Process





No investment is free of risk even though most people believe that some savings and investment vehicles are.  Most people think of risk only in terms of the risk of loss of principal.  Without good financial training, most people do not understand or appreciate the concept of interest rate risk, liquidity risk, inflation risk, regulatory risk, unsystematic risk, and a plethora of others.  People that think that U.S. Treasury securities and FDIC Insured bank accounts are risk free are likely to make very harmful errors trying to plane their financial future on their own.  As a minimum, a good understanding of the risks mentioned above is crucial to an intelligent allocation of assets and appropriate selection of investments.


Most mainstream financial planners claim to analyze a new client’s “risk tolerance” and base their investment suggestions on meeting that “risk tolerance”, whatever that means.  In reality, extensive research on the habits of individual investors has shown that people tend to change their “risk tolerance” as market and economic conditions change.  When the economy is booming, unemployment is low, and the stock market is rising, people tend to overestimate their “risk tolerance” and claim that they can accept “some risk” in their portfolio of investments.   Yet time and time again,when the economy weakens and the markets turn, millions of investors forget what they put on the form for their “risk tolerance” and proceed to sell significant portions of their investments in panic mode.  Over the last 50 years, there have been 16 years during which the S&P 500, representing the most widely watched stock market indicator, has dropped more than 12%. The average drop during these 16 “bear” markets has been more than 22%,with six of those years being more than 25%. Most people do not have the “risk tolerance” to tolerate an average loss of 22% every 3 years, or more than 25% loss on an average of every 8 years.  But this only represents market risk, and most investors take the worst action at the worst time in the face of this kind of risk and uncertainty.

But, what if an investor could look at a well diversified portfolio, update all of the holdings to their current value, and project, for any year in the future, what the portfolio would look like for different assumed values of gain or loss in the stock market.  That alone, would greatly reduce the likelihood of “panic” selling decimating an otherwise good investment strategy, when just riding through the storm is all that is required.   That is something that Futureproof Finances does for its clients.  However, more importantly, Futureproof Finances uses an array of low risk, often guaranteed investments to ameliorate the risks of the stock market, while keeping a substantial portion of the upside potential of the stock market.  Guaranteed investments such as commodity or market linked certificates of deposits (CD’s) , insurance company guaranteed structured settlements, real estate investments either through limited partnerships or real estate investment trusts, permanent life insurance, variable and index annuities with guaranteed principal and guaranteed lifetime income, are just some of the ways that a portfolio of stock and bonds can be risk balanced, to protect the assets, protect the buying power, and protect the lifestyle of clients.   The analysis tools used by Futureproof Finances, tailored to each individual client, and transferred to the client’s own computer allows each client to have the peace of mind to make the best investment choices in the face of the wide variety of risks and uncertainties in our 21st Century world.


FUTUREPROOF FINANCES LLC

Financial Planning and Consulting Services