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Understanding, Managing & Reducing Risk is Paramount in Building Wealth

Posted on | December 17, 2008

We talk a lot about optimizing assets, and understanding, managing and reducing risk is paramount in this process. You cannot achieve financial independence until you understand the risk exposure you have on all your assets.

Once you understand all the different types of risk with your home, real estate, IRAs, 401(k)s, retirement accounts, insurance, etc.; you can then begin to learn how to manage and reduce your risk exposure.

I did not say eliminate risk. There is no way you can completely remove all risk. Even if you were able to, there would be no return nor any reward. You would remain stationary with no opportunity for growth. Risk is essential to building wealth, but it can also be its demise.

One way to manage and reduce risk is to share the risk with someone else or with another entity. That way you do not have full exposure and neither does the other party. But together you are stronger and can be empowered to do much more. The most common example of this is a mortgage on your home. But it also can be applied to your retirement accounts, life insurance, and other long term investments.

Emron Andrew

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*Life insurance policies are not investments and, accordingly, should not be purchased as an investment

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