People talk about having security. Many think they know what that means, but few do.
Security is an important element of strategy. You can deal with it when you understand it. The common definition is “The state of being free from danger or threat.” That definition is rigid and therefore impossible because life, especially the financial part of it, is far from rigid.
Security relates only to the moment and cannot deal with the future. No one knows what the future dangers or threats will be and they have no way to know how old ones may present themselves.
Consider military defenses. If someone creates better armor, someone else creates a better warhead. In the ongoing war between warhead and armor, warhead eventually wins. You waste resources when you try to find a robust and enduring defense, because your defense will always be based on history.
There are three possible states of security.
- Robust defenses are discussed and dismissed above.
- Anti-fragile solutions as developed by Nassim Nicholas Taleb wherein a system benefits from chaos or adversity. These may be part of your defense system but the idea is deep and beyond the scope here.
- Resilient is somewhere in between and it serves for most people.
Define security for financial purposes to mean that a person has options and a margin for error. There is no specific thing that makes them secure. There is an ongoing process aimed at adaptation.
Resilient relies on two things.
- The creation of options to deal with circumstances that may appear unexpectedly or circumstances that change. In a business, perhaps the actions of a competitor would be an example of a formerly workable condition that became unworkable.
- A resource to provide capital to implement a defensive change and to maintain a desired lifestyle until the change takes effect.
Insurance can be the tool for many of the suddenly appearing adverse circumstances. A death, disability, fire, lawsuit for tort liability, or expensive treatment for illness are all insurable. None make the problem reverse but all provide resources to mitigate the effects.
Creating options is an important piece. Another supplier of a key component. A bank eager for your business. Employees who are able to do more than one job and are growing. A succession plan to cover emergencies.
Adversity, training and earlier the search for options, can point the way to a better future. Be aware and creative. Seek opportunity in the exploration.
Resilient is a good word for what what people really mean by security. Dictionary.com says it is:
- Springing back; rebounding
- Returning to the original position after being bent, compressed or stretched
- Recovering readily from illness, depression, adversity or the like
Be resilient. Prepare for the future in many ways.
Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.