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The biggest risk in financial planning

The word ‘risk’ is used in all elements of our lives and has many different meanings depending on the context and our own interpretation.

The subjective nature of the word makes it almost impossible to be defined across different people, at changing times, and when considering the evolving world around us.

In providing regulated financial advice, there seems to be a desperate attempt to place a generic definition of the word ‘risk’, where this definition can be applied directly to all investors making personal decisions about investing either a small amount of money or their life savings.

When considering investment there are a myriad of pre-defined categories of risk; measures, metrics, charts, graphs, symbols etc.

Sometimes investment risk is simplified down to a single measure; volatility (standard deviation). It could also reference downside risk, market risk, or sequencing risk. Questionnaires could be used to assess your risk appetite, attitude to risk or risk tolerance and more recently we have seen this described as ‘your willingness, need and ability to take investment risk’.

It will come as no surprise that none of these brave attempts to contextualise, simplify and define risk have worked in the eyes of the most important person – the client and end consumer; the actual investor.

Your definition of risk changes from day to day

As everyone is unique, ‘risk’ takes on a specific meaning to an individual at different times during their life and potentially even during different points of the day!

This is partly because any external ‘noise’ has such an impact on your views and opinion. This ‘noise’ comes from a variety of sources; from the television news, social media, political comments, economic experts, conversations with colleagues, friends, family and just that passing chat down the pub.

Ultimately ‘risk’ is a moving target. It’s a living, breathing thing and therefore the definition of it cannot be placed in a box and tied up in a bow. A ‘one size fits all’ questionnaire cannot be used to place an individual on a scale or in a group, or allocated a score when the solution just plugs in to the output.

Any consideration of risk, especially in an investment context, has to relate to an overall view of a family’s circumstances, with a thorough understanding of what is most important to them and where it is they are trying to get to.

This then needs reviewing, not because of ‘the noise’ (for example, the prorogation of parliament) but just because life moves on, things change and therefore any plans and strategies will also need to change.

The biggest risk to your plans

In our experience the biggest ‘risk’ to people’s plans is TIME. This is the one thing that is constant: it’s always moving forward, affects everyone and is entirely out of our control.

But, it is the greatest risk.

We all know life is not a dress rehearsal and we have no idea what is around the corner. We also know that this risk is the one thing that will catch up with us all.

There is obviously still great relevance in discussing and explaining risk alongside a clear financial plan. However, it is far more important to accept that we all have a finite amount of time and that taking action is the only way to ensure you live the life you want. This will have a far greater impact on your life, your happiness and the ‘risks’ you take.


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