Risk
Introduction and Alignment
Now listen you who say Today or tomorrow we will go to this or that city spend a year there carry on business and make money. Why you do not even know what will happen tomorrow. What is your life? You are a mist that appears for a little while and then vanishes.
James 4:13-14
Life is a risk. There are many unknowns and there is much uncertainty involved in financial decisions. However this uncertainty doesnt mean we cant be prepared nor should we become paralyzed by our fears. Once we understand the risks we face there are measures we can take to protect ourselves.
In finance we say risk is a function of two variables: (1) Probability and (2) Severity. The combination of these variables helps determine the appropriate response. The probability you will be involved in a serious car accident is low. However the severity may be high. Therefore the proper response is to always wear your seat belt. Similarly we can identify risks to our financial planning and then take appropriate actions to avoid or mitigate those risks. For instance for the same reasons we wear our seat belts we should also consider automobile health and life insurance.
Upon successful completion of this assignment you will be able to:
Resources
Background Information
For this assignment you take an important first step in developing your personal financial plan. You will first identify and explain the financial risks you are facing. You will then determine appropriate actions you can take to avoid or mitigate these risks.
Instructions