Risk Management

[Alex Straker]

Hi All

I am new here and was recently encouraged to join Somersoft by Rolf Latham. Rolf and I work closely in the finance industry on a referral basis, my specialty being risk management (not just insurance but buffer positions, cash flow management, estate planning, etc). I have a particular passion for ensuring people are not only creating wealth successfully but also protecting their position along the way. In my years of experience as a financial industry professional I have seen a lot of first hand cases of poor risk management causing MAJOR issues and feel this is often the most overlooked aspect of an overall wealth plan. Lets face it it's a bit of a boring topic and doesn't have the same glitz and glamour as a fancy deal!

I thought it might be interesting to ask around people's thoughts on risk management and what it means to you?


Disclosure and Disclaimer
I am a qualified Financial Planner. All information posted is general in nature only and should not be taken as personal advice.

 

[Jamie M]

Hey Alex

Welcome aboard

Cheers

Jamie

 

[Alex Straker]

Hi Jamie

Thanks brother!

Cheers
Alex

 

[jingo]

Hi Alex,
Welcome to the forum.

Risk management is something that I keep a close eye on. To me it means several things including having sufficient buffers (cash and LOC's) and an exit strategy should everything turn for the worse! I look for the best property managers and keep lines of communication open with them.

I watch my cashflow carefully and document the portfolio on an excel spreadsheet. I also do projections to work out the impact of adding further investments, be they shares or direct property.

I also like to add to my buffer each month (even if it is only by a small amount), progressing forwards rather than backwards.

I am fortunate to have found mentors from SS and I often run ideas past them. It is a great help. I am fortunate that they have been very forthcoming in discussing investments.

 

[Alex Straker]

Hi Jingo

Good to hear your thoughts, agree budget, buffers and cash flow are of extreme importance and I like your tip about constantly growing buffers, totally agree. I have run a lot of debt recycling strategies with clients and one thing we are always conscious of is growing the buffers and achieving some genuine debt reduction despite recycling a portion of it. By doing this the debt risk is steadily reducing. Exit plan is also important, with property assets this is not always clean cut though as I have seen cases where an exit is needed but the market refused to facilitate this.

One advantage of having some portfolio style assets is the added flexibility of being able to cash in a portion or sell at will and knowing exactly what to expect. Debt recycling/portfolio asset accumulation is an ideal complimentary strategy to a growing property portfolio for many reasons.

I would also be interested to hear about people's insurance thoughts as this is probably the area where I have observed the most 'pain' when not covered sufficiently (and conversely - relief from good cover!).

One of my areas of expertise is futures trading and the one thing a learned to focus on more and more as I gained experience is the risk management/money management aspect of the trading plan as this is crucial in eliminating risk of ruin and also achieving geometric growth in the account size. This topic is a lot more sophisticated than it seems and any experienced successful trader knows that a lot of your success is founded upon a sound money management algorithm. I firmly believe wealth accumulation is exactly the same on a different time scale.

Alex



Disclosure and Disclaimer
I am a qualified financial planner. This information is general in nature and should not be taken as advice.

 

[TPI]

I would also be interested to hear about people's insurance thoughts as this is probably the area where I have observed the most 'pain' when not covered sufficiently (and conversely - relief from good cover!).

Hi Alex, is there any particular website you would recommend to use to compare insurance products (features and premiums) for death and TPD, trauma and income protection insurance?

 

[Alex Straker]

Hi TPI

I really like your site, would like to discuss something with you when time permits.

In answer to your question - Canstar is by far the best resource for this type of information.

www.canstar.com.au

Having said that, my honest view is that ensuring you have quality risk protection is far too important to settle for a 'DIY' job unless you have significant experience in the personal insurance industry. I understand the average Somersoft member is a certainly more financially educated than most however insurance is highly specialised and getting the right help will avoid nasty comebacks. First issue is most people VASTLY underestimate what they need as a provision. Getting help with figuring out the appropriate levels for your circumstances is important. Obviously affordability has to be considered but my view is always that if your wealth creation is going well and your cash flow plan funds decent cover then why not protect your position (i.e hard won gains) properly instead of a band aid job.

Second issue is there are simply too many variations and definitions/policy options that people will either overlook or lack understanding of. As we can all appreciate, personal insurance is most needed in the case of a traumatic/tragic event and to try and save a few pennies when organising cover is a misguided view as the minor cost saving may bite back many fold!

In summary although I am aware that legitimate will kits are available from local post offices I would personally never dream of putting together a 'DIY' will. The money I have spent on seeking professional advice to organise my own estate planning was well worth the peace of mind and ensuring there were no issues that I neglected or did not consider. Insurance has a similar level of importance, this should be obvious to those of us accumulating (and in particular gearing) to increase our wealth but the statistics say otherwise.

Alex

Disclosure and Disclaimer
I am a qualified financial planner. All information posted is general in nature and should not be taken as personal advice.

 

[wylie]

Having just watched Grand Designs where a couple's build caused the neighbour's garden to collapse into their yard, the cost was going to be more than 100,000 pounds (from memory). Ultimately insurance covered this, but it seemed the featured couple's insurance didn't cover. Guessing it must have been the insurance either of the contractor or the house owner above whose yard fell in.

If we get our DA to build townhouses, the driveway will be running close to what was a flat(ish) yard, but the neighbours have dug down and built their house probably 2.5m below the ground level.

How do we insure the risk that what we do could impact on the retaining wall they build to hold up our yard? If machinery working in our yard puts pressure on the wall they built to hold back the soil in our yard, who would pick up the tab?

 

[TPI]

Hi TPI

I really like your site, would like to discuss something with you when time permits.

In answer to your question - Canstar is by far the best resource for this type of information.

www.canstar.com.au

Thanks Alex, you make some good points, it's certainly not easy comparing insurance products with all the different benefits and policy definitions.

Have you seen this site below and any thoughts on it?:

www.insurancewatch.com.au

It seems to allows you to compare different insurance products along with the premiums you would pay at a certain level of cover you can enter yourself, and seems to include all the big insurers from what I can gather.

 

[Alex Straker]

How do we insure the risk that what we do could impact on the retaining wall they build to hold up our yard? If machinery working in our yard puts pressure on the wall they built to hold back the soil in our yard, who would pick up the tab?

Hi Wylie

Afraid I can't give any personal advice on here. In any case this is a general insurance question, my area is personal insurances. Sorry I cannot be more help.

TPI

I was not aware of that site, they do seem to have the main providers listed there. Did not have a lot of time to explore but at first glance it looks a reasonable general information resource.

 

[BayView]

Hi All

I am new here and was recently encouraged to join Somersoft by Rolf Latham. Rolf and I work closely in the finance industry on a referral basis, my specialty being risk management (not just insurance but buffer positions, cash flow management, estate planning, etc). I have a particular passion for ensuring people are not only creating wealth successfully but also protecting their position along the way. In my years of experience as a financial industry professional I have seen a lot of first hand cases of poor risk management causing MAJOR issues and feel this is often the most overlooked aspect of an overall wealth plan. Lets face it it's a bit of a boring topic and doesn't have the same glitz and glamour as a fancy deal!

I thought it might be interesting to ask around people's thoughts on risk management and what it means to you?


Disclosure and Disclaimer
I am a qualified Financial Planner. All information posted is general in nature only and should not be taken as personal advice.

The problem with risk management is that if everyone only acted when there was little or no risk, then many folks would never get ahead in the property game.

My wife and I have always taken risks - as calculated as possible - and sometimes they have not worked out too well.

But, our nett result at this point in time is reasonable given all things considered - good and bad.

In hindsight, it might have been better (financially) if we both had stayed in our same jobs and never moved from PPoR no.2 back in 1998...

But we left that scene because we wanted more from our life at that time - could not imagine spending the next 20 years in the same life at that point in time..

 

[Alex Straker]

The problem with risk management is that if everyone only acted when there was little or no risk, then many folks would never get ahead in the property game.

My wife and I have always taken risks - as calculated as possible - and sometimes they have not worked out too well.

Hi Bayview

Thanks for the input, you are absolutely right I totally agree that taking risks is essential in seeking worthwhile returns and folks who play risk avoidance all their life do tend to struggle to get any real momentum whether it be in the property game or any other asset building venture.

In my humble view the first statement you made "The problem with risk management is that if everyone only acted when there was little or no risk..." is not in fact referring to a problem with risk management, it is a problem with total risk aversion. Risk management acknowledges that some measure of risk has in fact been taken (sometimes this can be substantial) and needs to be addressed as a matter of course.

I am all for taking risks, in fact I trade futures actively every single day and if you want to get your heart rate going I highly recommend it! How do I manage the risks with this? By following a strict trading plan and money management rules that limit risk. Plus in my trading plan I have specified what to do in case of various unexpected events. For example: aside from my main trading computer I also have a laptop with my trading account active in case of power failure as the laptop has a battery plus I have a battery powered hotspot aircard that can be switched on if needed. I have my brokers 24 hour contact number loaded in my mobile so I can call them quickly if there is a technology failure such as if the live data feed drops out or trading platform freezes. Might sound a bit extreme but in over 20 years of trading all these things have happened more than once and in day trading every second counts.

 

[robboat]

No risk = no reward.

I have "skin in the game" so I have risk....some risk you can insure against and some you have to just go naked.
Spent my life learning...and asking wiser souls than me.
Lose some money, get valuable experience, make more than before....
Shares, property & cash

But keep investing..and taking a good, calculated risk.

 

[VYBerlinaV8]

Risk management does not mean not taking any risk. It means identifying things that can go wrong, in terms of both likelihood and consequence, and then developing strategies and mitigations to reduce these risks. Risk management is a powerful tool for controlling potential issues.

Insurance is an example. Insurance is a case of transferring risk. You can also reduce, avoid or simply accept risk.