What’s the Risk?

Do you remember The Club? It was (and still is) a device that attempts to prevent car theft. The Club is essentially a metal bar that attaches to a car’s steering wheel and prevents it from turning.

When I lived in Philadelphia in the mid-90s, it seemed like every parked car had a Club secured to its steering wheel. So, whenever I had to park my car in a major city, I made sure to secure it with a Club as well.

I can’t think of the last time I used it. I’m going to guess you haven’t used one recently either. But why? Does that mean I’m ok with my car getting stolen?

The Club came to mind when I read the January cover story of the Journal of Financial Planning titled Reassessing Risk Assessments.

In the article, Shawn Brayman, director of financial planning at Morningstar, shares that clients’ willingness to take risk doesn’t materially change over time. What does change is risk perception.

As Michael Kitces wrote in 2010, “Risk attitude is a psychological trait – our ingrained willingness to seek risky trade-offs, and although it varies by person, it’s actually remarkably stable throughout our lifetimes. Risk perception, on the other hand, fluctuates continuously as we constantly re-evaluate the risk of what we’re doing and try to decide if it’s consistent with our comfort level.”

According to FBI statistics, vehicle thefts had been trending downward in the 26 years since they peaked at 1.7 million in 1991, falling 56 percent to 724,872 in 2019.

While I can’t say I consciously re-evaluated the risk of my car being stolen, those numbers (along with a move to the suburbs) likely triggered a change in my behavior.

That said, 810,400 vehicles were stolen in 2020, the highest annual number of vehicles stolen since 2008. Maybe it’s time to start using The Club again!

For financial advisors and planners, how has recent market volatility changed your clients’ perception of risk? Maybe it’s time for a new conversation!

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