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I enjoy reading stories about dumb criminals such as these:
When his .38 caliber revolver failed to fire at his intended victim during a hold-up in Long Beach, California, robber James Eliot peered down the barrel and tried it again. This time, it worked.
An employee of the Lucky Buffet in Hillsborough County, Florida noticed a strange sight on arriving at the restaurant. There were legs hanging out of a vent over the grill! 45-year-old Billy Jordan had tried to enter the restaurant the night before by climbing through the duct work, but became stuck and stayed there for ten hours. Hillsborough County Fire Rescue workers used a rope to pull Jordan back out through the roof, after which he was arrested for burglary.
These stories make me laugh and wonder “What were they thinking!” Well, obviously they weren’t thinking and that’s why they made it onto the dumb criminal countdown list.
Fortunately, I haven’t met any “dumb criminals” but I have met several people who have committed “accidental financial suicide” such as the real estate investor who was leveraged to the hilt and had all the cards come crashing done due to a small financial setback and the stock investor who was invested in a variety of companies only to discover stocks in the same sector can rise and dramatically fall together and can stay at these low levels for an extended period of time.
I call these mistakes “accidental financial suicides” because no one plans for these to happen, hence the accidental part, and the financial trauma involved can dramatically weaken or even wipe out your finances.
Here are questions I ask myself to help avoid an “accidental financial suicide”
- How much even beyond my initial investment can I lose if a leveraged investment I own moves against me?
- How will I pay my bills if I lose my job today?
- How will my family survive financially if either my wife or I pass away prematurely?
- What happens if I am the cause of a major car accident?
- Do I have enough insurance to protect my family against a major verdict?
- What happens if someone is hurt on my property?
- I know I have homeowners insurance but what does it cover and for how much?
- How many different categories and in what percentages are my investments spread across?
- Owning three different funds that are all buying the same stocks does not help.
- What is the largest individual stock or bond holding I have and how would my life change if tomorrow that company went out of business?
- How much correlation is their between my job and my investments?
- I am not a fan of owning stock in the company or industry you work for. If something happens to your company or that industry there is a chance you will lose your job and your investments will deteriorate all at the same time.
- What would the deductibles or co-pay be if someone in my nuclear family got very sick?
- Historically, what events caused my stocks or stock funds to fall? How likely do I believe those events will happen again?
- Historically, what events caused my bonds or bond funds to fall? How likely do I believe those events will happen again?
- Has there ever been a time when both my stock and bond funds lost money? What happened during that time and how likely do I believe those events will happen again?
- How long could I survive financially if one or more of my tenants didn’t pay their rent?
- How long could I survive financially if any of my rental properties fell in value?
- Do I have any debt that is maturing soon or whose payment terms might be changing soon?
- Where would I come up with the money to pay for an unexpected major car or home repair?
What steps are you taking to prevent “accidental financial suicide”?