Really Scary Risks and Asset Protection Planning

The scariest risks are risks that you don’t even know exist. The ones that are like a snake in the grass, silently coiled right by your feet ready to strike. It’s virtually impossible to manage risk unless you clearly understand the risks.  As an asset protection law firm, we’ve become pretty good at dealing with legal risk, and we’ve developed methods to eliminate or, at least, diminish it’s capacity to impact your wealth.  While legal risk is probably the greatest threat to your wealth, it is not the only risk to your wealth.

Defining Other Types of Risk

Besides legal risk, you should consider three broad categories of risk:

  • Institutional Risk — Remember Bear Stearns and Lehman Brothers?  How about MFGlobal, which took almost $800 million of client money down with it?  Major institutions have failed, and more possibly can fail. Have you done the research necessary to decide for yourself whether or not your bank or financial institution is safe? If not, you’re in the realm of really scary risk, and no amount of asset protection planning can save you.
  • Market Risk — This is the risk of investments losing value. Anyone who has ever bought stocks or bonds has consciously taken market risk. Asset protection planning isn’t designed to address this type of risk.
  • Control Risk–When you invest in stocks or bonds, you don’t control the underlying vehicle (company) in which your investing. That leaves you open to the risk posed by other people. Enron, WorldCom, and Bernie Madoff are good examples of what can happen when you give up control of your investments. My asset protection strategies leave you in charge of the planning, so control risk is at your option.
  • Currency Risk — Yes, currency can be risky, even if you hold it in 100 dollar bills in your mattress at home.  The reason is that the amount of goods of services that currency can buy in the global marketplace changes daily. You might be thinking “Isn’t this really market risk?” Yes and no. I think of it separately because it pertains to paper money and not investment instruments like stocks and bonds. For what it’s worth, I like the U.S. Dollar when it comes to currency. Call me crazy . . . . Any good asset protection strategy should give you the option to hold different currencies as you see fit.

More on Market Risk and Asset Protection

Many professionals follow advice that traditionally has worked very well–they buy municipal bonds and hold them until maturity.  That strategy has worked well for many years, and it might continue to work.  I’m not challenging your financial advisor’s advice. My goal is simply to make you think: Does it seem to you that we are experiencing traditionally reasonable market conditions?  Does the extreme volatility in the markets concern you at all, not to mention the daily headlines coming out of the closely correlated markets in Europe? Are you concerned about the filing of the largest municipal bankruptcy in history, and rampant fraud in the financial services industry?

This is the one question you should be asking:  Given all the known and unknown risks in the market, am I being appropriately compensated for my participation in the game?  If the answer is “no,” then consider sidelining some of your assets.  That’s asset protection 101.  If you don’t know the rules (risks), don’t play.