Shoot for the Stars, Carefully

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Given the heady returns of the past few years, it would be easy to spend all your time calibrating and re-calibrating your investment mix, looking for the optimal asset allocation. Everyone loves to check their monthly statements and talk investments when the markets are returning 10 percent to 20 percent a year.

But never forget to spend time anticipating the worst. Good wealth managers will spend just as much time on risk management as on asset management.

Here are a few risk-management issues that should be reviewed annually:

Life Insurance

If you die in your sleep tonight (much less painful than the proverbial "hit by a bus"), what will it take for your family to carry on in the style to which they have become accustomed? When I updated my insurance, it was a relatively easy calculation. I initially resisted updating my wife's policy as she is a non-income producing stay-at-home mom to four young kids. But then I pictured our family without my wife and how drastically my capacity for work would change. In the end, I updated her policy almost to the same level as mine.

One other note, if you have a policy that is 10 or 20 years old, get it reviewed. The cost of term life has dropped dramatically over the last decade because we're all living longer and insurance companies are much better about weeding out the high-risk cases. Chances are you could get the same amount of coverage for a lot less money.

Long-Term Care/Disability Insurance

Check out the costs of any long-term care facility...frightening. Fully half the money we spend in our lifetimes will be spent in the last six months of life. Make sure your assets make it to the next generation, not satisfying some long-term care debt.

Wills/Trust

Are your will and trust documents up to date? Are your assets titled correctly? You would not believe how many people spend $2,000 or more on a trust and then neglect to re-title all their assets. If you have resisted getting a will/trust, check out the costs and hassles of probate. Do your heirs a favor and make sure your will and trust are up to date.

Foregoing risk management is in itself a "risk." Cover your downside, live long and Prosper!

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