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Types of Investment Risk: Natural Disaster

We are in the middle of a series breaking down the various types of investment risks. You can read the introduction here. We are posting one article covering one risk each weekday until the series is complete.

Yesterday we covered , and today we are covering...

Risk #10: Natural Disaster

Description: Earthquakes, tornadoes, hurricanes, tsunamis, floods, fires, droughts, etc. can wreak havoc on investments with an economic interest in an affected area.

Tornado

Primarily Applies to... All investments are potentially subject to this risk, though to a greater degree in areas prone to weather related phenomena.

Real World Examples: Oklahoma City Mile-Wide Tornado, Hurricane Katrina, Sandy, Japan's Tsunami and Fukushima Nuclear disaster, Earthquake of 1994 (Los Angeles), etc.

Extreme Avoidance Measures: Place your cash in major national banks, staying under FDIC insurance limits or into major insurance companies (fixed contracts backed by a corporate guarantee).

Potential Mitigations: Diversification across industry and geography is the primary potential mitigation for this risk. Additional potential mitigations exist through insurance for specific natural disasters (i.e. flood insurance or wind insurance).

Stay tuned, tomorrow's highlighted risk is: Interest Rate Risk.

Written By: Joshua Ungerecht and Jim Rehfeld
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