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Summary

It is impossible to eliminate all types of risks from an investment pyramid. Your individual “risk tolerance”—your “risk/reward temperament”—your concerns and feelings about inflation, safety, and so on, should be determined. You can then manage risks in a way that will help you become more comfortable with the degree of risk you decide to assume.

With risk management, you will have to determine how much you want to protect against and at what cost. This is the balancing that we do anytime we have to weigh a cost and a benefit. This is easy when we are faced with insurance for our personal property, but more difficult when we are facing our own mortality through health, life, and disability insurance. I suggest that you start by looking at the cost of providing reasonable coverage in these areas, and the next step is to decide if you will scale back overall on the coverage or drop entire lines of coverage in favor of full coverage in other areas.


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