moneyFYI
Financial Freedom Is Merely Organized Common Sense
What Thanksgiving Teaches
We all know how gratitude is the foundation of every virtue. Knowing what you have and why it is valuable leads us higher. You cannot share effectively until you appreciate what you have and without sharing, you cannot make a great success. Recall capitalism is about trading which is mutual sharing.
Thanksgiving teaches us about how things change
Think of it from the turkey’s viewpoint. Life is very good in the spring and summer. The weather is nice, there are shelter and some friends to play with. Food is delivered regularly. Fresh water, too.
This goes on for months.
The turkey can become quite complacent. perhaps begin to overvalue his place in the world. Then the discontinuity.
On a day in the autumn, people come and gather the whole neighbourhood and take them all away. Turkeys cannot anticipate this and have grown comfortable with the old normal. It doesn’t end well.
The old normal changes
People are only slightly different from turkeys. We grow accustomed to our “normal” and we come to accept it as deserved and forever.
Not so.
While much of life is predictable within limits, we cannot know everything that might happen and when it will.
The inability to be sure about the future is what risk is about.
Learn to assess and manage risk
Risk comes in two forms.
Variability essentially means you can tell the future with some precision but you don’t know what will happen on a given day in the future. Like investment risk. If you need to know the value of your portfolio on a given day, you can guess wrong by a wide margin. If you need to know what it will be worth between 29 and 31 years from now, you will be able to guess closer. The variability evens out.
You manage variability by diversifying your assets. The idea is not to eliminate the ups and downs but rather have them cancel each other out a little. Minimize the range of the price movements taken as a whole.
Catastrophic risk is the risk of something happens that will not even out over time. Like dying. If you are young you can insure that kind of risk and you should.
The takeaway
Life can be discontinuous and if you know it you can provide methods that minimize the effect. A 30% drop in the stock market doesn’t matter unless you need to sell today. Dying doesn’t affect your family financially if you have provided a replacement for the money they relied on you to earn.
Never take current circumstances to be certain. No matter how much you have, things can change. Look up Brazillian ex-multi-billionaire Eike Batista for an example of what changes can happen.
Regularly examine your context and trust what you can see. If things could change in a way that would harm you, prepare defences. You might never need them but you will be happy to have them should the risk appear.
Insurance is not about what it is, it is what it allows you to do because you have it.
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I help people understand and manage risk and other financial issues. To help them achieve and exceed their goals, I use tax efficiencies and design advantages—the result: more security, more efficient income, larger and more liquid estates.
Please be in touch if I can help you. don@moneyfyi.com 705-927-4770
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