Suspenders, life preserver or sun block?  If you can’t afford all three, which would you buy?

An effective financial plan requires the same critical assessment, but too often, people don’t take the time to identify their uniquely personal risk factor.  If you’re not protected against that one risk which can really hurt your finances, take action before it’s too late.

Below are a few classic examples of concentrated risk:

• A large holding of your employer’s stock.  Because your salary and employment already depend on your employer, you shouldn’t own much of their stock.  Enron is the best-known example of what can go wrong.
• Not enough disability or life insurance.  If you’re in your 30s or 40s, you’re probably just starting the years of maximum earnings.  Protect your greatest asset – yourself.  In particular, many companies’ standard disability insurance benefit is insufficient.
• Retiree at risk of inflation.  Social security payments adjust for inflation, but if you have a fixed pension or a lot of annuities, your income won’t keep up with inflation and your standard of living will suffer.  Retirees need a healthy dose of stocks and/or inflation-protected bonds.
• Not enough “umbrella” insurance.  Your auto and home insurance probably only protects you for $300,000 – 500,000 of liability.  If your net worth outside retirement plans is a lot higher, your nest egg is at risk in an at-fault accident.

It’s pretty easy to figure out whether suspenders make more sense for you than a life preserver.  Invest time in the same analysis of  your unique financial vulnerability, and then protect yourself.