Highest Priority

 The majority of people who consider working with a financial planner have one goal in mind — to carefully invest earnings for the greatest returns and to build toward a secure retirement.  But is that the best goal?  And should that be the highest priority?

Likewise, over 90% of financial planners out there also focus mainly on the financial statements and investments.  There is a different approach if you model what big corporations and banks do to build successful businesses.  Investment strategies are not addressed until the appropriate foundation is in place to ensure success, and as much risk is transferred as possible.

Are we saying that investing is not important?  Not at all.  However, what good is it to have a massive net worth – millions even – if every penny of it is at risk?  It’s much wiser – and will save a lot of grief if you focus first on risk transfer and put in place what I call the RichLife Security System.

RichLife Security System

Stop and think why people spend a great deal of money on security systems for their homes.  The answer is simple: with a good security system in place the owner has peace of mind and can sleep at night.  In the same way a security system can be put into place to guard your finances against what I call the four thieves. No matter how much wealth you have accumulated, no matter the size of your net worth, these four thieves can greatly reduce, or even wipe out your entire portfolio.

Let’s go over each of the four and see how disaster can be prevented in each case with various methods of risk transfer.

Thief #1: Premature Death

No one likes to think about dying.  Because of this many families are caught short when premature death does occur.  Accidents, disease or illnesses can take the breadwinner and leave the survivors in a compromised position financially.

This subject takes on a very personal note with me since my own father died at age 49.  He had a successful business, but that was of little use to my mother after he was gone.  My father had been diligent to invest monies back into his retail nursery business, but he had omitted the simple step of purchasing enough life insurance.  As a result, life became more difficult for my mother than it would have been had a substantial policy been in place.  My dad worked very hard and had every intention of taking care of his family.  The problem is that none of us imagined that he would die an early death at age 49.  And this is a scenario that I’ve seen repeated many times in the last ten years since his death.

Another incident that comes to mind is a lady I met whose husband (the breadwinner) was killed in an accident.  When the wife went to collect the life insurance she learned that just the year before, the policy had gone to half its value.  The original policy itself would not have been sufficient, but half was almost a joke.

When this policy was set up, the agent no doubt pointed out to them that after the income-earning years were past and after the mortgage was paid off, the family would not need as much life insurance.  And so they chose those terms for their policy, never thinking how it would affect their lives.

The message here is that it’s not enough to have a policy in place.  That policy must be reviewed on a regular basis to make sure the security system is in good working order so that if something happened to the income-earner, the family can keep their RichLife intact.  I’ve lost count of the times that people have brought in their policies to me and they have not been reviewed in 10-20 years.  Sadder still is the fact that most of the time clients do not understand the terms of their policies.

Thief #2: Disability

Disability is very closely related to premature death.  Again, this is not a fun subject to talk about, but one that needs to be faced in order to make sure the thief cannot wipe out your entire portfolio

Cancer is a culprit we hear about quite often these days.  A person is diagnosed and then must undergo extensive treatments.  This often means the loss of work time.  Sometimes it even means the loss of a job which places the family in dire straits.

When the mortgage payments cannot be met, the family could lose their home.  Relationships become strained and quality of life has been greatly compromised. Add to that the fact that medical bills begin to pile up and you have a real recipe for disaster.

Whether it’s cancer, or an accident, or some other disease or illness, these things can happen to anyone.  A disability insurance policy put in place could greatly ease the pain of this tragedy.  There are policies designed to replace a person’s income – or at least a portion of it.  It could be the very thing that prevents the loss of the family home.  Disability insurance is a small price to pay to prevent this from becoming a devastating scenario.  In the present economy it’s a well-known fact that many households cannot exist for very long with the loss of a paycheck.  So why take the chance?

Thief #3: Lawsuits

It’s no secret that we live in a very litigious society.  People seem ready to slap a lawsuit on someone for the least little reason.   For instance, someone could be injured on your property and file a lawsuit against you.  Even if you were not at fault, you will be paying attorney fees to prove your innocence.

I personally know of a situation where a man had a very successful business and had accumulated a fantastic net worth.  However, an incident arose where he was sued and he lost everything he had.  This massive loss could have been prevented with what is known as an umbrella policy.

An umbrella policy is another important component in building the RichLife Security System.  The price of such a policy is relatively cheap when you consider you can get millions of dollars in liability protection for pennies on the dollar.  Such a policy acts like an umbrella sitting on top of your auto and homeowners liability policies to provide extra protection.  It’s important to make sure you are covered in these areas.

Thief #4: Erosion Factors

The fourth thief is erosion factors which can include taxes, fees, inflation, and lost opportunity costs.  These are the little things that can eat away at a person’s net worth and over an amount of time can cause substantial losses.

On the surface these may appear to be inevitable.  After all, taxes need to be paid and who can fight against inflation?

The previous three thieves all involved a measure of risk transfer which is affected by having the proper insurance policies in place.  Fighting against the erosion-factor thieves also involves creating a risk transfer, but in a different form.

In this present economy, laws are changing, tax codes are changing, the market is changing – so much so that we don’t know where inflation will be a year from now.  Or even if it’s going to be a factor or not.  Because of this uncertainty you need to have access to a team of trusted advisors who check in with you on a regular basis and review matters of concern.  You need professionals in place to stay on top of these things for you.

This is where having a qualified team of reputable professionals comes into play. In order to ensure that you have the best guidance possible, you need professionals who have your best interest at heart (and are not simply trying to make a sale).

For instance, your CPA and your financial planner could be conferring together regarding your financial matters. Think of how that could work to your advantage in strategizing, and coordinating, both your investments and your tax matters.  Unfortunately, this does not happen in most cases.

Now you see why at the outset I asked the question: What good is it to have a massive net worth – millions even – if every penny of it is at risk?

Those who set about to take care of their investments without putting a proper security system in place are getting the cart before the horse.  Why work your entire life to build up a substantial net worth if it is vulnerable to any one of the four thieves?

It’s a fairly simple matter to set up a risk transfer security system and keep it in place at all times.  It doesn’t matter if you have $10 million in a perfect investment; if these risk transfer strategies are not in place, everything is at risk.  Everything is vulnerable.

Take steps now to ensure that your future will not be filled with regrets. Instead, put your RichLife Security System in place and enjoy the peace of mind that comes from  planning based on certainty not luck.

 OK, now we are ready to talk about investments….