Monday, June 26, 2017

Smoothing

Insurance doesn't remove risk. It smooths it. You can accept, avoid, mitigate or transfer risk but you can't make it disappear. We are on a large rock hurtling through space around a fiery ball, buffeted by water, wind, lightening and each other. The problem with things seeming like they are 'risk free' is Moral Hazard. Nothing is risk free. We behave differently when we don't think anything will affect us badly. That is why a little bit of difficulty is a good thing. If you can afford to accept risk, that is the best way to look after it. Accept some bad stuff will happen, and allow for it. Be aware of it. Build a Buffer, so that the bad doesn't finish the game. A Buffer tops things up in bad times, and builds up in good times. It smooths the ride. Consciously.


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