Sunday, October 4, 2009

Risk: It is What You Don't Know that Matters

We speak often about transparency, how your 401(k) should be easy to understand, how the mutual funds in the plan should be up to the task of providing you with good options that cost as little as possible and how knowing these things will grow your investments. It is all about disclosure. And your retirement future.

I bumped into this anonymous morality tale about these topics, okay about how not revealing important information to those involved can place you in a compromising situation, one that we were all in just a year ago.

Consider the story of the naked wife.

A man is getting into the shower just as his wife is finishing up her shower when the doorbell rings. The wife quickly wraps herself in a towel and runs downstairs. When she opens the door, there stands Bob, the next door neighbor. Before she says a word, Bob says, “I’ll give you $800 to drop that towel.” After thinking for a moment, the woman drops her towel and stands naked in front of Bob.

After a few seconds, Bob hands her $800 dollars and leaves. The woman wraps back up in the towel and goes back upstairs. When she gets to the bathroom, her husband asks,…

“Who was that?” “It was Bob the next door neighbor,” she replies. “Great!” the husband says, “Did he say anything about the $800 he owes me?”

Moral of the story:
If you share critical information pertaining to credit and risk with your shareholders in time, you may be in a position to prevent avoidable exposure.

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