What to Pack: Vacation-Inspired Lessons on Managing Risk

For Christmas this year, our kids asked to go on a cruise. It’s not entirely clear where they learned about cruises (my guess is commercials during Sunday afternoon football games), but whatever the case may be, the marketing worked. We’d been hearing about how cool it would be to take a cruise since September. Long story short, a Black Friday deal sealed the deal, and we started the year with a family trip to the Bahamas.

I’ve traveled enough with my children now to know how brutal it can be to forget a necessity. I also know the exhaustion of lugging around more kid-related items than we could possibly need. Consequently, packing for these trips has become a mental task akin to playing Tetris. We have limited space, and we’ve got to make it count.

As I was packing for this recent trip, it occurred to me that my mental process had a lot in common with how we think about managing risk in a financial planning context.

‍Packing as a Framework for Risk Management

As I’m making my list of what we’ll need, I’m considering both the consequences of not having something and the likelihood of needing it—along with the cost of lugging it around (particularly if it’s big and heavy).

At one point, I sat on the floor of our bedroom pondering whether or not we should bring our pool floaties.

On the one hand, my youngest can’t swim, so if we find ourselves in a swimming scenario, it’s good to have them. On the other hand, the pool on the ship didn’t look very large, and in beach scenarios, she’s historically preferred covering herself in sand instead of getting in the water. Further contemplation reminded me that while floaties are bulky, they’re not heavy.

What to do, what to do.

When we talk about risk management, whether in portfolio construction or broader financial planning (often in the context of insurance decisions), we’re asking very similar questions:

• Is this risk likely?
• Are the consequences meaningful?
• What does it cost to protect against it?

Evaluating Risk Through Likelihood and Consequences

A common example in financial planning is homeowners' insurance. The risk of my home burning down is low (though it has increased in recent years with the prevalence of wildfires). The consequence, however, is pretty significant. Without insurance, we would be homeless if our house burned down. As we weigh those consequences against the price of home insurance, we conclude that owning insurance is worthwhile—even as the price of insurance rises due to the creeping likelihood of the event. Organizations like the Insurance Information Institute consistently emphasize this balance between probability and impact when evaluating needs.

Managing Risk Inside an Investment Portfolio

Risk management also plays a critical role in portfolio construction.

We can also examine the market environment and assess the likelihood of an interest rate move. As such a move becomes increasingly likely, portfolio managers are becoming increasingly sensitive to the duration of their portfolios, which serves as a statistical reference point for interest rate exposure. A manager will hedge their exposure to rate movements by managing the duration of their portfolio. The extent to which they will do so depends on what they expect the likelihood and magnitude of a move in interest rates to be. 

As we enter 2026, there is a lot of uncertainty present in both financial markets and the economy. One topic we always return to in our economic outlooks is the importance of diversification as a means of hedging against different outcomes. How diversification is tilted is often determined by the likelihood of those outcomes and the severity of the consequences. Similarly, we want to check in consistently with our clients to ensure their plans appropriately hedge the risks inherent in life.

Planning for the Risks Life Brings

While we can’t help you pack, we can give you peace of mind when it comes to stewarding the wealth you’ve worked hard to build. Our team has years of experience across multiple disciplines, helping clients navigate the risks of investing and planning for life’s ups and downs. Give us a call; we’d love to sit down with you and help you form a comprehensive plan unique to your goals and values. 

Oh, and in the end, we packed the floaties. When it comes to our three-year-old, we believe strongly in the phrase “better safe than sorry.”