Portfolio strategy: 4 financial lessons from bridge collapse
Investing is like navigating unpredictable waters. Lessons from navigating investments, personal experiences stress the importance of financial prudence, risk management, and foresight in ensuring a secure financial future.
Navigating investments is like steering a ship through unpredictable waters. Take the instance of Rohan Smith living in the US who was an expert in taking large ships out of ports.His forefathers from India were also seafarers. On this day when he was maneuvering the ship, he suddenly felt cold with sweat breaking out on his dry skin. The ship he was commanding would not change course as the power had failed.
He never anticipated the complete failure of power.
Julie Alzuru on her way back from a party was driving across the bridge with windows rolled down, listening to music and enjoying the cool air.
As she looked out across the bridge, she was stunned to see the ship moving at a good speed with “May Day” calls.
She stopped and sensed that something was amiss and that the ship was likely to hit the pillar that was holding the bridge.
She too felt cold with sweat breaking out of her well-maintained skin. She has been crossing or driving across the bridge for many years. She never anticipated this situation.
The Francis Scott Key Bridge that collapsed in Baltimore, US after it was hit by a disabled cargo ship, was tragic as Lives were lost.
Some of the apparent implications and learnings for our well-being and our life are:
- The closure of the Port of Baltimore has financial ramifications for the state and the supply chain along the East Coast of US and in turn global supply chains; Over 11 million vehicles use the bridge every year, translating into over 30,000 vehicles per day on average.
– A problem can have massive implications e.g not having a financial backup during emergencies could expose you to serious financial damage
– The cost of a new bridge could be as high as USD 350 m or more. The staggering cost of rebuilding the bridge serves a stark reminder of being prepared for a rainy day.
– The prompt action by the police in closing the bridge when the ship’s Mayday call went out saved many lives. So, responsiveness for an unforeseen event is important. This serves the significance of the value of training and preparedness in . Just as aging infrastructure poses risks, an outdated can leave one vulnerable to uncertainties.
– Aging infrastructure is a very risk that cannot be overlooked because of budgetary constraints
The bridge built in 1977 could handle the increased traffic which was anticipated but the engineer did not think that the ship could become larger. Between 1977 and now it is estimated that ship size has grown by 50%.
Like the bridge, an investment portfolio must adapt to changing conditions- both from a risk perspective as well as return perspective.
In all such cases, some risks would have been anticipated and addressed, but some could never have been anticipated.
A deeper analysis of the incident will reveal risks that were not considered or risks that were not addressed adequately and could help in avoiding such future incidents.
Such lessons I feel also have broader implications and learnings: for instance, to highlight how some new risks may hurt our financial situation.
Risks are never eliminated completely; they just take different shapes. Safety protocols can be set, BCP practices adopted and yet “Things happen “in most unexpected ways and many times cause serious damage.
The likelihood of an event happening is small but is not zero and the damage could have severe ramifications. While risks cannot be eliminated, it can be managed.
In financial matters, the only way to address or manage such risks or situations are --
- Understand the intricacies of the products that you are investing in, e.g. if you are investing in Bitcoin; do you understand the workings of bitcoin well?
- Check the strength or the portfolio resilience of your investments in some extreme situations, is your investment very volatile or illiquid that you cannot liquidate in time when you need it?
- Ensure you are not concentrated in one strategy or asset class; yes, the way to wealth is through concentrated investments but for some the concentrated risks may be too high to bear. – The other way is to say- be diversified.
- Life Throws Curveballs: Plan for the Unexpected
By applying the lessons from the Baltimore ship collision, you can use the appropriate mutual funds suitable to your requirement, to help you navigate the unpredictable waters of the investing world with an aim to safeguard your future.
In summary, the parallels between shipwrecks and financial setbacks emphasize the need for prudence and foresight.
Note: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
Source: Stocks-Markets-Economic Times
