The financial risks you cannot see coming

Summary

We spend much of our time preparing for visible financial risks. But longevity, inflation and inadequate insurance can create deeper risks that surface only when it is too late to respond.

During a recent visit to the Maritime Museum in Lisbon, Portugal, I stood before a life-size sculpture of Vasco da Gama. With limited navigation tools, incomplete maps, and only an obscure sense of the uncharted world ahead, I wondered how he might have prepared for his voyages.

More than five centuries ago, when da Gama set sail for India, his ability to foresee danger was limited. Drawing on past explorations, he would have prepared for the risks he could imagine: treacherous storms, giant waves, jagged coastlines, pirates, or dwindling supplies of food and water. These risks were visible and clearly frightening.

Yet one of the greatest dangers of da Gama’s first voyage to India was one he did not anticipate. Midway through the voyage, his sailors’ limbs and gums began to swell and bleed; many grew weak and died without warning. Only much later was this deadly affliction traced to scurvy, a disease caused by a deficiency of vitamin C.

It made me ponder how we prepare for risks we do not yet realise. We spend so much time worrying about the risks we can see: the sudden market fall, the interest-rate change, the currency movement, or the outbreak of war. But the risks that shape our financial lives most profoundly often build quietly over years. They hide in ordinary assumptions about income, expenses, health, and lifespan, until one day they become impossible to ignore.

Invisible risks

My 80-year-old neighbour’s retirement became a vivid example of this insidious risk. When he retired more than 20 years ago, he worried about market volatility, inflation, managing cash flows, and funding medical or sudden expenses. Today, his biggest concern is different: whether he may live much longer than planned, and whether his money will last till he is 100.