In recent weeks I’ve focused on some of the growing risks in the financial system. In the stock market, there are day trading enthusiasts and their obliging brokers. And in Washington, there is a Federal Reserve that seems to have served up a bottomless punch bowl of new money.

The result is that, despite being in a recession, with 11% unemployment, the stock market is close to its pre-coronavirus all-time high, fueled in part by the Fed’s policies, which have caused income-starved investors to accept higher risk in exchange for higher yield. Meanwhile, the Federal budget deficit has gone into the stratosphere—in June alone the deficit was more than $800 billion, up 10x from last year—and the Fed has printed about three trillion new dollars.

So it was natural for a reader to ask which of these factors posed a bigger risk—an over-eager stock market or an over-spending government. My response: These risks aren’t the only risks. In fact, the worst kinds of risks are the ones we aren’t currently paying any attention to. Risks that catch us by surprise are, by definition, the ones we’re least prepared for. Below are just a few examples. Some of these represent risks to the entire system while others may impact people on a more individual basis.

• Cyber security: Ask anyone who works for a financial institution, and they’ll tell you that their systems are attacked every day. Fortunately, most attacks are unsuccessful. But I do worry about a situation in which a major bank’s system were compromised. The result would be chaos, even if it were eventually sorted out.
• Identity theft and other types of fraud: In the past I’ve talked about Peter Willmott, the former CEO of Federal Express, whose own bookkeeper stole nearly $10 million from him. Former president Ulysses S. Grant found himself bankrupted by a Ponzi scheme late in life. Fortunately, these are the exception rather than the rule, but they illustrate that fraud can affect anyone.
• Litigation: Travel down a highway in many states, and you’ll see ads for attorneys blanketing billboards. “Injured? Call us!” Especially if you’re a physician or a small business owner, litigation is a risk. But it can impact anyone who simply owns a home or drives a car.
• Political risk: Ever since the 2000 election got hung up in litigation, I get a little nervous in election years. The reality is that financial markets are mostly agnostic to political parties, but they hate uncertainty. And to have the Oval Office hanging in the balance may be the worst kind of uncertainty.
• Tax risk: For high-income families, there are three types of tax risk. The first two, income taxes and estate taxes, are both scheduled to increase automatically in 2026, but a regime change in Washington could easily accelerate that timetable. The third—a wealth tax—doesn’t exist, but the concept has been getting more airtime in recent years. Two presidential candidates made it part of their platform this year. And in Los Angeles, a teachers union promoted the idea in a white paper issued this week.

Beyond these somewhat conceivable risks are what many call “tail risks”—probably much less likely but potentially much more harmful. These include war, terrorism and the entire universe of unknown unknowns.

If this list seems a little overwhelming, it’s not surprising. The human brain has evolved to become very good at focusing on one thing at a time. Research, in fact, has shown that we’re terrible at multitasking. So it’s not realistic for anyone to simultaneously worry about the current crisis while also keeping an eye on the Fed, the election and the stock market—not to mention war, terrorism, climate change and everything else. (That’s probably why, in April, little attention was paid to a Pentagon statement acknowledging “unidentified aerial phenomena.”)

So what’s the solution? As I said last week, there is no magic bullet. But there are some things you can do:

As you think about your financial future, the most valuable thing you can do to protect yourself is to think in terms of scenarios, or ranges of outcomes. Don’t make a single plan. Instead, plan for multiple contingencies.

When you’re building a portfolio, especially these days, it may feel inefficient to leave too much in bonds or cash. Because of inflation, in fact, you’d be losing money. But I think it’s useful to think about this part of your portfolio the way you think about insurance. In any year that you pay an insurance premium but don’t make a claim, you’ve “lost” money, in theory. But in reality, you paid a price for protection against a rainy day. I’m just as distressed as everyone else at the way the Fed has zeroed out interest rates, but I still see bonds and cash as worthwhile for this reason.

Whenever prospective investment returns drop, “alternative” investments become more attractive. This might be gold or Wall Street’s latest structured product or high-yield bonds or maybe a complex insurance contract. Or it might be Zoom stock. In all of these cases, I would urge caution. The mere fact that stocks and bonds have become less attractive does not suddenly make these products good products. It just makes them appear better.

Most importantly, don’t get overly hung up on one type of risk. Recognize that our brains are wired to do this—aided and abetted by 24-hour news coverage of the crisis of the day. But without minimizing the severity of the current situation, it’s equally important to think through the list above. As much as possible, try to think about risks that may lay around the corner.