How to Better Manage Risk

Money For the Rest of Us

J. David Stein

Investing, Investing Podcast, Business, Economics, Economy

4.5 • 1.4K Ratings

🗓️ 11 September 2019

⏱️ 33 minutes

🔗️ Recording | iTunes | RSS

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Summary

What are the three steps to better manage risk and get what you really want.

Topics covered in this episode include:

Why goods and services that lessen risk tend to cost more.
What is the three-step process for assessing and managing risk.
Why defining the risk-free option or asset is critical to managing risk.
Why immediate annuities are the retirement risk-free option rather than a conservative investment portfolio.
What are the two types of risk and how do we mitigate them.
What is the difference between hedging and insuring against risk.

Thanks to Dashlane and The Great Courses Plus for sponsoring the episode.

For show notes and more information on this episode click here.

[0:17] Weighing the risk and knowing how to make a decision under uncertainty.
[5:00] Three steps for assessing and managing risk.
[9:11] Finding the risk-free asset in a retirement plan.
[14:36] Idiosyncratic & systemic risk.
[16:40] De-risking and using hedges to create a risk buffer.
[20:22] Identifying a sound insurance operation.
[23:36] Using flexibility as a risk management strategy.

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Transcript

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0:00.0	Welcome to Money for the rest of us. This is a personal finance show on money, how it works, how to invest it and how to live without worrying about it.
0:10.0	And your host David Stein today's episode 268. It's titled How to Manage Risk.
0:16.3	I'm in New York and a Jersey for a few days.
0:21.4	I flew in the JFK, ran rented a car to visit my sister, dropped the car back at JFK
0:27.0	because Avis wanted $700 to drop the car off in Midtown, Manhattan.
0:34.4	After I dropped off the car, I took the Ayrtran
0:37.9	to the Howard Beach station.
0:39.9	The price to take the Ayrtran and then connect to the subway into the city is $5.
0:46.4	I got to the spot. There wasn't anybody manning the booth. The machines to pay the $5 had a line 8 people deep.
0:54.4	There were 3 machines.
0:55.4	There were 25 or 30 people waiting to pay to buy a ticket.
1:01.1	A man approached me and says, I know you don't want to wait in that line.
1:05.0	Here's an Aertran card that I'll let you use.
1:08.0	I was a little wary. He said, how much do you want?
1:11.0	Five dollars. I jumped at the chance. He could have charged me ten and I would have gladly paid.
1:19.2	Because in my mind, I was saving $700 not dropping off the car in Manhattan.
1:26.4	And he was right.
1:27.6	I didn't want to wait in that line.
1:30.5	My concern was that by doing so I would miss the train that I wouldn't know how long the line would be
1:36.7	That subway would come or the train would come and I would miss it
1:40.6	This was a good deal for him. He knew there was his bottleneck. He could buy a 10-trip Aertran
1:48.5	card for only 26 dollars. That means he was making $ 250 each time someone used the card. The downside
	...

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