A recently deceased friend of mine, who spent his entire career working at Boeing, once said that the biggest challenge of managing risk wasn’t the unknowns.
It was the unknown unknowns. This past week we read about Silicon Valley Bank’s failure to “stress test” its unknown unknowns.
A few years back, with rates on short-term bonds and CDs yielding less than 1%, SVB probably thought it was prudent to place client deposits not in risky startup ventures, but in something safe and secure, like 10-year U.S. Treasury bonds with a yield much higher than 1%.
It looks now like SVB didn’t run a stress test on the possibility of two unknowns happening at the same time:
- Interest rates on the 10-year bonds increasing (causing bond prices to fall).
- Clients wanting their deposits back.
You know the rest of the story. While we are on the topic of “stress tests,” have you done the same with your portfolio and financial plan?
Are you prepared for the unknown unknowns that can impact your financial well-being in retirement?
Here is a sneak peek at one unknown unknown I will address next week.
Stay tuned . . .
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