Risk Financing

  

Categories: Credit

As the CFO of our sister’s construction company, So Hot Right Now Houses, Inc., we’ve seen our fair share of brow-furrowing financial situations. Like...the time that storm came through and flooded all ten houses we were building on Cherry Street. Or the time we got sued because some kid broke into one of our job sites, tripped on a piece of plywood, and gave himself a concussion and a broken arm. That’s why we’re big fans of “risk financing,” which is basically a plan for achieving SHRN, Inc.’s financial goals while still having enough money—and enough insurance coverage—to make sure we’ll be okay when the next storm comes through, or when the next hoodlum trips on some plywood.

At the end of the last fiscal year, we sat down in our big fancy corner office, kicked off our Top-Siders, and then listed all the risk events we were likely to encounter over the next year, and how much they’d probably cost. Then we did a bunch of research on different risk coverage options (read: insurance) and how much they would cost. We chose the least expensive coverage options that would fully protect the company, while still allowing us to grow and thrive, and voila. Awesome risk financing strategy achieved.

Related or Semi-related Video

Finance: What are Systematic and Unsyste...14 Views

00:00

finance a la shmoop what are systemic and unsystematic risk systemic risks are

00:09

just endemic to the market want to invest in the stock market and compound [Plate of vegetable appear]

00:13

return your way into great wealth great but then you'll suffer the normal risk

00:19

of the system that risk specifically is this yeah best of times worst of times

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but up over time the market goes up you just have to embrace the notion that [Man hugging a tree]

00:31

there is systemic risk in that in the short run you can buy an S&P 500 index

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fund here then lose like a third or whatever of your money in not too many

00:41

years but if you don't panic and sell just at the wrong time here right out

00:45

the storm and keep going well then you should be just fine by the time you

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arrive here so that's risk that is always in the system equities rise and [Equity in the ocean]

00:55

fall like the tides or something like that but generally they rise and if you

01:00

want to swim in this bathtub well you get used to the turbulence and have an [Girl swimming against the tide]

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airsick bag handy all right that systemic risk or systemic risk

01:08

what's unsystematic risk well it's bad investors or rather bad investing it's

01:14

panicking and selling your stock just when you should be doubling down its

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buying lousy companies thinking that they're cheap today but not realizing [Woman runs away from smelly girl]

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that they will always be cheap because they're lousy or in a lousy industry or

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run by lousy management it's buying into lousy industries that also look cheap

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but are dying hello paper and pulp is yeah anyone really think that's gonna be [Paper printing]

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around in 20 years all right well it's believing the dreamy hopes and prayers

01:39

of future earnings and trusting that there really will be 5 million [Traffic on the highway]

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driverless cars on the road in 3 years you know good luck with that we'd love

01:48

it to be true but ain't gonna be unsystematic risk is also investing in

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bonds for the long-term taking very little risk when taking little risk is

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the opposite of what you should be doing when you're a young investor so yeah

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systematic and unsystematic risk both exist plentifully and both can bite you [Dog bites portfolio from woman]

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right in the portfolio so you got to know what both are and embrace them

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for what they're worth

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