Flying High By Managing Risk In Wealth Management

Managing wealth is like flying an airplane. In doing both, you'll face plenty of risk. The secret to both flying and investing is managing those risks.

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The first step to managing risk is facing it. Plenty of people in their 20s and 30s who dream of learning to fly planes put those aspirations off for later. They have young children, new spouses, mortgages to pay, jobs to focus on and a myriad of other things to do. Well, the same holds true with investing. People in their 20s and 30s are vaguely aware they need to plan for retirement and start saving. However, other parts of life—children, mortgage payments, car loans, other bills—take over. As any investment adviser can tell you, too many people put off planning for their retirement until it's too late.

Similarly, almost every flight school instructor can tell you stories about people in their 40s, 50s and even seniors who regret that they didn't follow their hearts and take to the sky years ago. Most investment advisers can share stories about clients with similar regrets. Facing their upcoming retirements, these clients are kicking themselves that they didn't talk to an adviser or come up with a wealth management strategy years before.

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The next step to managing risk is preparing well. Pilots pre-flight checklists. Before they fire up the engines of their aircrafts, pilots rely on a process. They inspect their planes, both internally and externally. Pilots include everything from pre-flight checks to fastening their seatbelts on their checklists as they look to cut down on risk. Once in the air, pilots have different checklists to go through. This ensures that if things start to go wrong, pilots know what they have to do to ensure a happy landing.

Investors need to do the same thing. Of course, every investor has different needs. Some are more concerned with income. Other investors are focused on capital preservation or creating a legacy. No matter their needs, every investor—just like every pilot—should forge a checklist based on where they're at in life and what their investment needs are.

You also want to make sure you have the proper tools. Planes have control surfaces to let pilots adjust their flights and minimize the risk. These include flaps, rudders, ailerons and other parts of the plane. The pilot has control over all these various instruments, much like investors have some control of where they put their money including stocks, bonds and other options.

Communication is another key. Whether you're flying a plane or planning out your retirement, communicating with experienced individuals is important. Even on solo flights, no pilot is ever alone. Air traffic controllers are always there to help pilots. They play a large role in directing and helping pilots, making sure they stay on course and don't deviate from their flight plans. Even when things are clear, the best pilots always check in with air traffic controllers. Of course, when things go wrong, pilots turn to air traffic controllers for help.

Investors can think of financial advisers as their air traffic controllers since both groups have years of experience and training. Just as pilots don't want to face rough weather or other hazards without the help of air traffic controllers, investors should reach out to knowledgeable professionals when there'sturbulence in the market. It's my belief that experienced professionals—be they air traffic controllers with years of experience or seasoned financial advisers—are also far less likely than a rookie pilot or an inexperienced investor to panic when a crisis looms.

Knowledgeable individuals can also help pilots and investors with backup plans to help cut down on risk. Many small planes have parachute systems in case something goes wrong. Some planes have Ballistic Recovery System (BRS) parachute systems for when things go wrong. In layman's terms, when a crisis occurs, the pilot pulls the BRS handle and a rocket-powered parachute comes out of the rear window and floats down under the canopy. These kinds of precautions are always needed, even for the best pilots.

Investors can learn from that example. Just as pilots have to fly in all sorts of weather, investors encounter all sorts of climates in the market. They should consider meeting with an adviser to craft their fallback plan. You might even say an adviser can help lead investors to sunny skies or provide parachutes when needed.

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Ryan Krauss is president and CEO of U.S. Central Financial Group. He is an Investment Adviser Representative with advisory services offered through Global Financial Private Capital and a licensed insurance professional. He and his wife, Erica, have two boys. Krauss is a U.S. instrument-rated pilot.

Investment Advisory Services offered through Global Financial Private Capital, LLC, an SEC Registered Investment Advisor. SEC registration does not imply any certain level of skill or training.

Kevin Derby contributed to this article.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Ryan Krauss is president and CEO of U.S. Central Financial Group. He has been in the insurance business for 17 years and added investment advisory services in 2013. Ryan believes in advising his clients the same way he would advise his own family, which creates lasting client relationships and many referrals.