Broker Check

Managing or Transferring Financial Risk

Everyone perceives and assesses financial risk differently. With respect to their investments, we ask our clients whether they prefer managing the risk, transferring the risk or a combination?

Managing the risk typically means diversifying among the various asset classes and then rebalancing periodically. On the other hand, transferring the risk generally involves an insurance company and focuses on seeking protection of the account balance or principal or the income it distributes. 

When an investor seeks guaranteed income by transferring the risk to an insurance company, essentially their retirement account can become a pension fund, that is an investment stream that can’t be outlived, also seeking protection against another form of risk – longevity risk. Of course, there are costs related to transferring risk, and they typically impact liquidity. 

There is no right or wrong answer to the question of managing or transferring investment risk as long as the investor understands what is available and at what cost and can therefore make an informed decision. We help our clients understand the details as well as the pros and cons of either approach relative to their specific situation.

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