What Is Legislative Risk and Can It Really Happen?

Join Matthew del Junco, President of Financial Planning and Senior Wealth Advisor at Liberty Group, as he explores the concept of legislative risk and its potential impacts on your investments and retirement planning. Whether you’re a business owner, an investor, or on the path to retirement, grasping the subtleties of legislative risk is vital for maintaining and enhancing your financial health. By diversifying your investment portfolio and keeping abreast of policy shifts, Matthew provides actionable advice on navigating legislative risk.

Defining Legislative Risk 

First things first, let’s define what we mean by legislative risk. In the simplest terms, legislative risk refers to the uncertainty and potential financial loss businesses and investors face due to changes in laws, regulations, or government policies. This could be anything from new taxes, changes in environmental regulations, to shifts in labor laws. The essence of legislative risk is that it’s beyond your control, yet it can have a profound impact on your business or investment’s performance. 

Examples of Legislative Risk 

To give you a clearer picture, let’s consider some examples. Imagine you’re a business owner in the renewable energy sector. A change in government policy that reduces subsidies for renewable energy can significantly affect your bottom line. Or, if you’re an investor in the tech industry, new data protection laws could increase operational costs for the companies you’re invested in, potentially reducing your returns. For retirees, changes to tax laws, such as how Social Security and retirement accounts are taxed, can have a significant impact on the longevity of their retirement savings. 

Can It Really Happen? 

Now, you might be wondering, can legislative risk really happen to me? The short answer is, absolutely yes. Legislative changes can occur in any country, at any time, and affect any industry. The key factor here is change. Governments evolve, priorities shift, and as they do, the legislative landscape changes too. No business or investment is immune to the potential impacts of such changes. 

Mitigating Legislative Risk 

So, what can you do about it? While you can’t control government policy, you can mitigate legislative risk. This includes diversifying your retirement accounts to spread tax liabilities, diversifying investment portfolio across different sectors and regions, staying informed about potential policy changes, and sometimes, even engaging in advocacy or lobbying efforts. For businesses, developing a flexible business model and maintaining a reserve fund can also help navigate through periods of legislative uncertainty.