Key Insight One:
The Value of Financial Risk Management
During my first semester at the University of South Carolina, I took a class called Finance 363: Introduction to Finance. This was an awesome class, and I fell in love with finance immediately. During my advisement meeting that semester, I added a finance major to my pre-existing management major. For the next two years, my love for finance seemed to fade. I could not find a job description that interested me, or an internship that did not bore me to death. It seemed as if there were no careers within the field that interested me, and I began to regret my decision to major in finance. I was worried I made a mistake. I began feeling scared about my future, yet I stuck with it.
At the beginning of 2021, over two years later, I began an internship at Prudential Financial, Inc. in Downtown Columbia, South Carolina with a Senior Financial Professional, Travis Hudson. As a Financial Advising Intern, I would assist Mr. Hudson in some of his sales presentations where he would sell Managed Money accounts to individuals that were looking to invest in a portfolio, most often for retirement. There were many different portfolios available for investment. Each portfolio had their own set of expected returns, and most of the time, when returns increased, so did the risk. When assisting Mr. Hudson in these sales presentations, it was always interesting to see how people responded to various levels of risk. For example, Mr. Hudson and I once assisted a man that believed he was low on money yet was recently forced into retirement for health reasons. After analyzing his assets and accounts, Mr. Hudson uncovered more money that the client was not aware of in retirement accounts and employer pension plans. Since the man was currently struggling financially, he knew he wanted to be more conservative in his investments. After listening to the man explain his levels of risk aversion and his reasons behind them, Mr. Hudson advised his client to take the portfolio that was historically consistent, yet safe. As seen in my Artifact One, Prudential offers their own additional risk management by covering the potential of some losses, however, this would cap their gains at a certain level. During this client presentation, I realized just how important financial risk management is in everyone’s life. Something as simple as a historical analysis of an investment’s yearly returns, when presented and explained to a man in need, was life changing. At this moment, I knew I was in the right industry.
Artifact One:
Sample Annuities Investment Document
The semester before I started my internship, a class exposed me to the idea of financial risk management. This class was Finance 469: Investment Analysis Portfolio. During my time in this class, I learned many different formulas, ratios, and theories that assessed the risk of different investment opportunities. The most common, and most important risk-analysis that was taught, was simply a historical analysis. This was just like the historical analyses Mr. Hudson and I used during the client presentations. These historical analyses are applicable in assessing the stock market, bond ratings, portfolios, and just about every other financial tool. They simply use historical data, like returns and growth percentages to predict what the financial tool will do in the future. As heard by many, and coined by George Santayana, “Those that do not remember the past are condemned to repeat it.” Finance 469 applied this idea to the world of finance because when you begin to understand what the market, a portfolio, or a bond has done in the past, you can begin to learn what they might do in the future. By learning these things, investors will be able to invest their earnings wisely, reducing their risk.
In my final project for the class, I performed my own historical analysis on a custom portfolio that attempted to keep a consistent return no matter the state of the market. In my final project for the class, Artifact Two, you can see the historical analyses that were run in the portfolio. Other theories and formulas were used to calculate risk and help us further understand the risk and how to manage it. However, they were all derived from historical data and analysis. As a result, they were all focused on a simple concept that was applicable to the man Mr. Hudson and I helped the following year, my own investments, and everyone’s investments: financial risk management. By understanding what a financial instrument has done in the past, we can manage the risks associated with investments.
Artifact Two:
Final Project in Finance 469
I knew I was on to something. Over two years after adding a finance major, I found the love that grew in me during Finance 363. After starting my internship at Prudential and understanding the numbers behind the facts presented in client meetings, financial risk management became a passion for me. I began researching different types of careers in the financial services and risk management fields. After nearly six more months of time and effort, I came across an Actuary’s job description, and I was relieved. I had finally found a job that interested me. An Actuary uses statistics to determine the level of risk associated with certain events or individuals in Property and Casualty Insurance or Life and Health Insurance. These statistics are used to determine the cost of insurance for families, businesses, and everything in between. Through the application of financial risk management at an internship less than two miles from where I learned it, I found my dream job in the financial services industry. I will soon be able to help manage other’s financial risk, because helping others understand basic concepts like historical analyses is an important way to help everyone preserve or grow their wealth.
Those around me commented on the internal growth that occurred in me after reaffirming my love for finance (and now risk management). My parents started to tell me that I seemed much happier, and some of my friends commented on how much more I talked about my future positively. Before, I would attempt to change the subject when we began talking about our lives after college and focus switched to me and my future. I also had friends approach me when investing, asking for my opinions on what terms or numbers meant. I learned to explain the concept of financial risk management in an easily understood manner. These comments, my newfound love for financial risk management, and understanding of finance helped increase my confidence in my success in the future while kick-starting my professional growth, and transitioning me into studying to become an Actuary.