Risk Management: Safe Bets: Risk Management Techniques for Wealth Builders

1. Introduction to Risk Management in Wealth Building

risk management is a critical component of wealth building, often overlooked in the pursuit of high returns. It's the process of identifying, assessing, and controlling threats to an organization's capital and earnings. These threats, or risks, could stem from a wide variety of sources, including financial uncertainty, legal liabilities, strategic management errors, accidents, and natural disasters. In the context of wealth building, risk management is about balancing the pursuit of growth with the need to protect against financial loss.

Different perspectives on Risk management:

1. The Conservative Investor: From the conservative investor's viewpoint, risk management is about capital preservation. They prioritize investments with lower volatility and potential for loss, even if it means accepting lower returns. For example, they might favor bonds over stocks, or blue-chip stocks over startups.

2. The Aggressive Investor: On the other end of the spectrum, the aggressive investor may view risk management as a way to maximize returns. They are willing to take on higher levels of risk for the chance of greater rewards. They might invest in high-growth stocks, emerging markets, or venture capital.

3. The strategic investor: The strategic investor takes a middle ground, using risk management to balance their portfolio across different asset classes. They might allocate a certain percentage to stocks, bonds, real estate, and cash, adjusting the mix as market conditions change.

In-Depth Information:

1. Diversification: This is the practice of spreading investments across various financial instruments, industries, and other categories to reduce exposure to any one particular asset or risk. A well-diversified portfolio might include a mix of stocks, bonds, real estate, and commodities.

2. Asset Allocation: This involves dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash. The process depends on the individual investor's goals, risk tolerance, and investment horizon.

3. Hedging: This is a risk management strategy used to offset potential losses in one investment by taking an opposing position in a related asset. For example, an investor might use options contracts to protect against a decline in the value of stock holdings.

4. Insurance: Wealth builders can use various insurance products to manage risk. For instance, life insurance can protect a family's financial stability in the event of the breadwinner's untimely death, while property insurance can protect against losses from events like theft or natural disasters.

Examples Highlighting Ideas:

- Diversification Example: An investor who only owns technology stocks may suffer significant losses if the tech sector crashes. By diversifying into healthcare, energy, and consumer goods, they can reduce the impact of a tech downturn.

- Asset Allocation Example: A young investor with a high-risk tolerance and a long investment horizon might allocate 80% of their portfolio to stocks and 20% to bonds. As they approach retirement, they might shift to a more conservative 60% stocks and 40% bonds.

- Hedging Example: If an investor owns a significant amount of airline stocks, they might hedge against a potential industry downturn by purchasing put options on an airline index.

- Insurance Example: A real estate investor might purchase property insurance to protect their investment properties against fire, flood, or other damages, ensuring that their wealth-building efforts are not derailed by unforeseen events.

Risk management in wealth building is not about eliminating risk but managing it in a way that aligns with one's financial goals and risk tolerance. By employing strategies like diversification, asset allocation, hedging, and insurance, investors can protect their wealth while still striving for growth. It's a delicate balance, but one that is essential for long-term financial success.

2. The First Step to Security

understanding your risk tolerance is akin to knowing your own mind and heart when it comes to financial decisions. It's about gauging how much uncertainty you can handle in pursuit of potential gains. This self-awareness is crucial because it shapes every investment strategy you'll ever craft, and it's the bedrock upon which all other risk management techniques are built. Different investors have different comfort levels with risk, influenced by their financial goals, investment timeline, past experiences, and even their personality. For instance, a young entrepreneur might be more willing to take on high-risk investments compared to a retiree who depends on their savings for daily expenses.

Here are some in-depth insights into assessing your risk tolerance:

1. Quantitative Assessment: This involves numerical methods like questionnaires that score your responses to various risk-related scenarios. For example, you might be asked how you would react if your investment portfolio lost 10% of its value in a month. Your score helps determine whether you're a conservative, moderate, or aggressive investor.

2. Qualitative Assessment: This is more subjective and involves introspection. You need to consider your reactions to past market downturns. Did you panic and sell, or did you see it as a buying opportunity? Your emotional responses to these situations are telling indicators of your risk tolerance.

3. Financial Capacity for Loss: This is a practical consideration. How much financial loss can you endure without affecting your standard of living? This is often measured by your liquidity needs and the size of your emergency fund.

4. Investment Horizon: The length of time you plan to invest can also influence your risk tolerance. Generally, the longer your investment horizon, the more risk you can afford to take, as you have more time to recover from potential losses.

5. Diversification Strategy: Diversifying your investment portfolio can help manage risk. For example, an investor who is risk-averse may opt for a mix of low-risk bonds and a few high-risk stocks to balance potential gains with a level of security.

6. Life Goals and Financial Objectives: Your personal and financial goals play a significant role in determining your risk tolerance. Saving for a child's education may require a different approach compared to saving for a vacation.

7. Market Knowledge and Experience: Investors with more knowledge and experience tend to have a higher risk tolerance because they understand market dynamics better. For instance, someone who has studied market cycles may not be as phased by short-term volatility.

8. Advisory and Support Systems: Having a trusted financial advisor or a robust support system can sometimes increase an individual's willingness to take on risk, as they feel more confident in their decision-making process.

To illustrate, let's consider the example of two investors: Emma, a 30-year-old software developer, and John, a 65-year-old retired teacher. Emma, with a stable income and a long investment horizon, might be comfortable investing in a startup company's stock, which carries a high risk but also the potential for high returns. On the other hand, John, who relies on his savings for living expenses, might prefer government bonds, which offer lower returns but have a much lower risk profile.

By assessing your risk tolerance, you're not just preparing to build wealth; you're also safeguarding your peace of mind. It's a critical first step that informs every subsequent decision in your financial journey, ensuring that your investments align with your life's goals and your sleep remains undisturbed at night.

3. Spreading the Risk

In the realm of wealth building, diversification is akin to the age-old adage of not putting all your eggs in one basket. It's a strategic approach that involves spreading investments across various financial instruments, industries, and other categories to reduce exposure to any single asset or risk. The rationale behind diversification is that a portfolio constructed of different kinds of investments will, on average, yield higher long-term returns and pose a lower risk than any individual investment found within the portfolio. This strategy hinges on the correlation between assets; ideally, they should not be perfectly correlated. When one investment is down, another might be up, thus balancing the performance of the portfolio.

1. Asset Allocation: This is the primary step in diversification. It involves dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash. The process is not random; it should reflect an investor's financial situation, risk tolerance, and time horizon. For example, young investors might take a riskier stance with a higher proportion of stocks, while those nearing retirement may prefer bonds for steady income.

2. Geographic Diversification: With the global economy more interconnected than ever, investing in international markets can offer growth opportunities and a hedge against domestic market volatility. For instance, when the U.S. Stock market experienced a downturn, some emerging markets like India or Brazil showed growth, benefiting investors who had stakes in these regions.

3. Sector and Industry Diversification: Different sectors react differently to economic cycles. While tech stocks may suffer during a market slump, consumer staples or healthcare might hold steady or even increase. Diversifying across sectors can protect against sector-specific risks.

4. Company Size Diversification: This involves spreading investments across market capitalizations, including large-cap, mid-cap, and small-cap companies. Each segment performs differently under various economic conditions. Small-cap companies, for example, may offer higher growth potential but come with higher risk.

5. Investment Style Diversification: Combining growth and value investing styles can be beneficial. Growth stocks are expected to outperform the overall market over time, while value stocks are traded below what they are really worth and hence, provide a margin of safety.

6. Alternative Investments: Beyond stocks and bonds, alternative investments like real estate, commodities, and hedge funds can diversify a portfolio. These assets often have low correlation with traditional investments, providing a buffer during market dips.

7. Diversification Over Time: Also known as "time diversification," this strategy involves adjusting one's investment mix as one gets closer to a financial goal. It's commonly used in retirement planning, where the asset mix becomes more conservative as the goal date approaches.

To illustrate, consider the case of an investor who allocated funds to technology stocks, pharmaceuticals, European real estate, and government bonds. When the tech bubble burst in the early 2000s, the pharmaceutical and real estate sectors were not as severely affected, and government bonds provided stable returns, mitigating the overall impact on the investor's portfolio.

Diversification strategies are essential for managing risk and are a testament to the prudence of not chasing after high returns without considering the potential downsides. By spreading the risk, investors can navigate the turbulent waters of the market with a greater sense of security and stability. Remember, diversification does not guarantee against loss; it is a method used to help manage investment risk.

4. The Role of Insurance in Protecting Your Assets

Insurance plays a pivotal role in the grand scheme of risk management, particularly when it comes to safeguarding one's assets. It serves as a financial safety net, ensuring that in the face of unforeseen events—be it natural disasters, accidents, or theft—the economic impact on your wealth is mitigated. The essence of insurance is to transfer the risk of a potential financial loss from the individual to the insurance company. This exchange, facilitated through the payment of premiums, allows individuals and businesses alike to recover from losses without bearing the full brunt of the financial burden.

From the perspective of a homeowner, insurance is indispensable. For instance, a homeowner's insurance policy not only covers the structure itself but also the possessions within, offering compensation in the event of incidents like fires or burglaries. Similarly, auto insurance protects against the financial implications of car accidents, theft, and other vehicular damages.

For entrepreneurs, business insurance is crucial. It can encompass several policies such as liability insurance, which protects against claims of negligence or harm, and property insurance, which covers the business premises and its contents.

Here are some in-depth insights into the role of insurance in asset protection:

1. Risk Assessment and Premium Calculation: Insurance companies employ actuarial science to assess the risk associated with insuring an individual or business. This assessment determines the premium, which is the price paid for the insurance coverage. For example, a building located in a flood-prone area would typically have a higher premium for flood insurance due to the increased risk.

2. Diversification of Risk: Insurance allows for the diversification of risk across a large pool of insured entities. This means that the financial burden of losses is spread out, making it manageable for the insurance company and keeping premiums affordable for policyholders.

3. Business Continuity: For businesses, certain types of insurance are essential for continuity. business interruption insurance, for example, provides compensation for lost income during periods when the business is unable to operate due to covered events.

4. Legal Requirement: In many cases, insurance is not just a wise financial decision but also a legal requirement. Many jurisdictions mandate certain types of insurance; for instance, auto insurance is legally required for vehicle owners in most countries.

5. Leverage in Loans and Mortgages: Insurance can also play a role in securing financing. Lenders often require insurance as a condition for a loan or mortgage, as it assures that the collateral (such as a house or car) is protected against loss.

6. Estate Planning: Life insurance is a key component in estate planning. It provides a death benefit that can be used to settle debts, pay for funeral expenses, or provide for the deceased's dependents, ensuring that the wealth built over a lifetime is not eroded by final expenses.

7. Tax Benefits: Certain insurance policies can offer tax advantages. For example, the premiums paid for a whole life insurance policy can grow tax-deferred, and the death benefit is generally tax-free to the beneficiary.

To illustrate, consider the case of a small business owner who has invested heavily in specialized machinery. If a fire were to destroy this equipment, the financial loss could be devastating. However, with a comprehensive property insurance policy, the owner can receive compensation for the lost equipment, allowing the business to replace the machinery without significant financial strain.

Insurance is an integral component of a robust risk management strategy. It provides peace of mind and financial security, ensuring that when the unexpected occurs, the impact on your assets is cushioned, allowing you to rebuild and recover with confidence. Whether you're an individual safeguarding your home and car, or a business owner protecting your enterprise, insurance is a key ally in the quest to preserve and grow your wealth.

5. Understanding the Risks and Returns

Investment vehicles are the essence of wealth building, serving as conduits through which investors can participate in a range of assets to grow their capital. However, with the potential for returns comes the inevitability of risk. The relationship between risk and return is fundamental to investment decisions; generally, the higher the potential return, the higher the risk. Diversification is often touted as the cornerstone of risk management, allowing investors to spread their exposure across various asset classes, sectors, and geographies. Yet, even a well-diversified portfolio is not immune to systemic risks that affect the entire market or specific risks unique to an investment vehicle.

From the perspective of a conservative investor, the priority is capital preservation, which leads to a preference for low-risk investment vehicles like government bonds or high-grade corporate bonds. These offer lower returns but provide a greater degree of security and predictability. On the other hand, an aggressive investor, willing to tolerate higher levels of volatility, might lean towards high-yield bonds, stocks, or even derivatives, which can offer higher returns but come with a greater risk of loss.

1. Stocks: Equity investments can deliver substantial returns, as shareholders benefit directly from a company's growth. However, stock prices are volatile, influenced by both company-specific news and market sentiment. For example, a tech startup's stock might surge on news of a breakthrough product, only to plummet if the product fails to meet sales expectations.

2. Bonds: Generally considered safer than stocks, bonds provide regular income through interest payments. Yet, they are not without risk; inflation can erode the purchasing power of the bond's future payments, and there is always the risk of default. For instance, municipal bonds are popular for their tax-exempt status, but a city's deteriorating financial health could jeopardize those bonds.

3. Mutual Funds: These funds pool money from many investors to buy a diversified portfolio of stocks, bonds, or other securities. While mutual funds offer diversification, they also carry management fees and are subject to market risk. An example is an index fund tracking the S&P 500, which spreads risk across the top 500 companies but will still reflect the volatility of the overall market.

4. exchange-Traded funds (ETFs): Similar to mutual funds, ETFs offer diversification but are traded like stocks, providing more flexibility. They can be more cost-effective due to lower fees and can focus on specific sectors or themes. For example, a renewable energy ETF might include a mix of solar, wind, and hydro companies, offering exposure to the clean energy sector's growth potential and risks.

5. real estate: This tangible asset can provide rental income and appreciation in value. However, real estate markets can be cyclical, and properties require maintenance and can be difficult to sell quickly. An investor might purchase a rental property in a growing city, benefiting from rising rents, but could face vacancies or declining property values if the local economy falters.

6. Commodities: investing in physical goods like gold, oil, or agricultural products can hedge against inflation and provide a counterbalance to stocks and bonds. However, commodity prices are highly volatile, subject to changes in supply, demand, and geopolitical events. An investor in gold may find safety during economic uncertainty, but if markets stabilize, gold prices could drop sharply.

7. Derivatives: These complex financial instruments derive their value from an underlying asset and can be used for hedging or speculation. Options and futures can provide leverage, amplifying gains and losses. A trader might use options to speculate on a stock's movement, potentially earning significant returns if correct, or facing total loss of the investment if wrong.

understanding the risks and returns of various investment vehicles is crucial for crafting a strategy that aligns with one's financial goals and risk tolerance. By considering different perspectives and employing risk management techniques, investors can navigate the complexities of the financial markets with greater confidence and poise.

6. The Safety Net

building an emergency fund is akin to constructing a financial safety net that stands ready to catch you during life's unexpected falls. It's the buffer that can help you withstand the impact of unforeseen expenses without derailing your long-term financial goals. Whether it's a sudden job loss, a medical emergency, or an urgent home repair, an emergency fund provides the liquidity and peace of mind to manage these situations without resorting to high-interest debt options like credit cards or payday loans.

From the perspective of a financial advisor, the emergency fund is the cornerstone of a solid financial plan. It's the first step in risk management, ensuring that clients are prepared for volatility in their personal or professional lives. On the other hand, behavioral economists view the emergency fund as a testament to human foresight and self-control, a tool that counters our tendency to prioritize immediate gratification over long-term security.

Here's an in-depth look at building and maintaining this essential component of financial health:

1. Determine Your Emergency Fund Size: The size of your emergency fund should be based on your monthly expenses. A common recommendation is to save three to six months' worth of living expenses. For example, if your monthly expenses are $3,000, aim for an emergency fund between $9,000 and $18,000.

2. Choose the Right Savings Vehicle: Your emergency fund should be easily accessible but not so easy that you're tempted to dip into it for non-emergencies. high-yield savings accounts, money market accounts, or short-term certificates of deposit (CDs) can be good options.

3. Set Up Automatic Contributions: Treat your emergency fund like a recurring bill. Set up automatic transfers from your checking to your savings account right after payday. Even small amounts can add up over time.

4. Keep It Separate: To resist the temptation to spend your emergency fund on non-essentials, keep it in a separate account from your regular checking or savings accounts.

5. Regularly Review and Adjust: As your financial situation changes, so should your emergency fund. If you get a raise, increase your contributions. If your living expenses go up, adjust your target amount accordingly.

6. Replenish as Needed: If you need to use your emergency fund, focus on replenishing it as soon as possible. This ensures that you're always prepared for the next unexpected event.

For instance, consider Sarah, a freelance graphic designer. When her laptop suddenly died, her emergency fund allowed her to purchase a new one without missing a beat in her work. Without that fund, she might have had to put the expense on a credit card, incurring interest and potentially affecting her credit score.

An emergency fund is not just a pool of money; it's a strategic asset that safeguards your financial well-being. By viewing it through various lenses—practical, psychological, and strategic—you can appreciate its multifaceted value and make it an integral part of your risk management toolkit.

7. How Emotions Affect Risk Taking?

In the realm of financial decision-making, emotions play a pivotal role, often acting as the unseen force that drives individuals towards or away from various levels of risk. While traditional finance theories assume that investors are rational actors who make decisions solely based on maximizing expected utility, behavioral finance introduces a more nuanced perspective that acknowledges the complexity of human psychology. It posits that cognitive biases and emotional responses can significantly influence investment choices, sometimes leading to less-than-optimal outcomes.

From the lens of behavioral finance, here are some insights into how emotions affect risk-taking:

1. Overconfidence: Investors often overestimate their knowledge and ability to predict market movements, leading to riskier bets. For example, during the dot-com bubble, many traders exhibited overconfidence, heavily investing in tech stocks without due diligence, ultimately resulting in significant losses when the bubble burst.

2. Loss Aversion: This principle suggests that people feel the pain of losses more acutely than the pleasure of gains. It can lead to an irrational cling to losing investments in the hope of a turnaround, or conversely, to the premature selling of winning stocks to 'lock in' gains.

3. Herd Behavior: Investors may follow the crowd without independent analysis. The fear of missing out (FOMO) can drive individuals to make hasty decisions, such as the rush to buy Bitcoin during its peak, only to face the consequences when the value plummeted.

4. Mood and Weather: Surprisingly, even the weather can impact investor sentiment. Studies have shown that sunny days can lead to more optimistic risk assessments compared to gloomy weather.

5. Regret Aversion: The fear of making a wrong decision can lead to inaction or overly conservative investment strategies. An example is the reluctance to invest in stocks after experiencing a market crash, despite potential opportunities.

6. Anchoring: This occurs when investors fixate on specific prices or benchmarks, which can distort their perception of value. For instance, an investor might hold onto a stock that has fallen well below its purchase price, waiting for it to 'bounce back' to that anchor point.

7. Mental Accounting: Individuals may treat money differently depending on its source or intended use, which can lead to irrational investment behaviors. For example, someone might gamble away a windfall from a lottery win rather than investing it prudently.

By understanding these emotional influences, investors can develop strategies to mitigate their effects, such as setting strict investment criteria, diversifying portfolios, and employing automated decision-making tools to counteract emotional biases. Ultimately, recognizing the interplay between emotions and risk can lead to more informed and balanced investment decisions.

8. Risk Management for Future Goals

long-term planning is the cornerstone of effective risk management, especially when it comes to securing future financial goals. It involves a strategic approach to identifying potential risks that could derail one's financial trajectory and implementing measures to mitigate them. This process is not just about avoiding risks but also about recognizing opportunities that align with one's long-term objectives. From the perspective of an individual investor, long-term planning might mean diversifying their investment portfolio to spread risk across various asset classes. For a business, it could involve scenario planning and stress testing to prepare for different market conditions.

1. Diversification: One of the most fundamental strategies in long-term planning is diversification. By investing in a mix of assets, such as stocks, bonds, real estate, and commodities, investors can reduce the impact of any single investment's poor performance on their overall portfolio.

Example: Consider an investor who allocates their funds equally between stocks, bonds, and real estate. If the stock market experiences a downturn, the stability of bonds and potential gains from real estate can help offset the losses.

2. Regular Review and Rebalancing: Long-term goals require regular review and rebalancing of one's portfolio to ensure alignment with risk tolerance and investment objectives. Market fluctuations can cause an investment mix to drift from its original target allocation, necessitating adjustments.

Example: An investor starts with a 60/40 stocks-to-bonds ratio. After a bull market, the ratio might shift to 70/30, increasing the portfolio's risk. Rebalancing would involve selling some stocks and buying bonds to return to the 60/40 allocation.

3. Risk Assessment Tools: Utilizing risk assessment tools like Value at risk (VaR) or stress testing can help in understanding the potential losses in adverse market conditions and prepare accordingly.

Example: A company might use stress testing to simulate how a financial crisis would affect their cash flow and adjust their business strategy to ensure sustainability.

4. Insurance: Insurance is a critical component of risk management, providing a safety net against unforeseen events. This includes not only personal insurance like life or health insurance but also professional liability or business interruption insurance.

Example: A family's primary breadwinner might take out a life insurance policy to ensure their family's financial stability in the event of their untimely death.

5. Contingency Planning: Having a contingency plan in place for unexpected events is essential. This could involve setting aside an emergency fund or having access to lines of credit.

Example: An entrepreneur might maintain a reserve fund to cover at least six months of operating expenses in case of a sudden drop in revenue.

6. Succession Planning: For businesses and even individual investors, planning for succession is a way to manage the risk associated with leadership transitions.

Example: A family-owned business might have a clear succession plan detailing who will take over management in the event the current leader is unable to continue.

7. Regulatory Compliance: Staying abreast of regulatory changes and ensuring compliance can mitigate legal and financial risks.

Example: A financial institution might invest in compliance software to keep track of changing regulations and avoid costly penalties.

Long-term planning in risk management is about creating a robust framework that can withstand the test of time and adapt to changing circumstances. It's a dynamic process that requires vigilance, foresight, and a willingness to adjust strategies as goals and the external environment evolve. By considering various perspectives and employing a range of strategies, individuals and businesses can position themselves to achieve their future goals with confidence.

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9. Keeping Your Portfolio on Track

In the dynamic world of investing, monitoring and rebalancing are critical components that ensure your portfolio remains aligned with your financial goals and risk tolerance. This ongoing process involves periodic reviews and adjustments to maintain the desired asset allocation, which can drift over time due to market fluctuations. Divergence from the intended allocation can expose your portfolio to higher risk levels or reduce potential returns. Therefore, a disciplined approach to monitoring and rebalancing is essential for wealth builders who aim to manage risk effectively.

From the perspective of a financial advisor, monitoring a client's portfolio is akin to a navigator constantly checking the course of a ship. Market conditions, economic indicators, and individual asset performance are scrutinized to determine if the portfolio's current trajectory will meet the client's long-term objectives. Rebalancing, then, is the act of making course corrections to steer the portfolio back to its original or updated strategic allocation.

For the DIY investor, monitoring might involve setting up alerts for certain thresholds or using investment apps that track portfolio performance against benchmarks. Rebalancing could be as simple as selling off outperforming assets and purchasing underperforming ones to restore balance.

Here are some in-depth insights into the process:

1. Assessment of Current Allocation: The first step is to evaluate how your investments are spread across different asset classes, such as stocks, bonds, and cash. For example, if your target allocation was 60% stocks and 40% bonds, but due to a stock market rally, your portfolio is now 70% stocks, it's time to consider rebalancing.

2. Comparison Against Target Allocation: This involves measuring the current allocation against your target or ideal allocation, which should reflect your risk appetite and investment horizon. If there's a significant deviation, rebalancing is warranted.

3. Deciding on a Rebalancing Strategy: Investors can choose between different strategies such as calendar-based (e.g., quarterly, annually), threshold-based (e.g., when an asset class deviates by more than 5% from its target), or a combination of both.

4. Tax Considerations: When rebalancing, it's important to consider the tax implications of selling assets. Utilizing tax-advantaged accounts like IRAs or 401(k)s for rebalancing can minimize tax liabilities.

5. Transaction Costs: Frequent rebalancing can lead to higher transaction costs. It's crucial to weigh the benefits of rebalancing against these costs.

6. Market Timing: While rebalancing, it's important to avoid market timing. Instead, focus on maintaining your long-term investment strategy.

7. Using New Contributions: An effective way to rebalance is to use new contributions to purchase underweighted assets, thus avoiding the need to sell over-weighted assets.

Example: Imagine an investor named Alex who started with a 50/50 split between stocks and bonds. After a year, his stocks performed well, shifting his portfolio to 60/40. To rebalance, Alex decides to invest his year-end bonus into bonds, bringing the allocation back to his desired 50/50 without incurring any capital gains tax.

Monitoring and rebalancing are not just about maintaining a set allocation; they're about ensuring that your investment strategy continues to reflect your goals, risk tolerance, and the economic landscape. By regularly reviewing and adjusting your portfolio, you can navigate through the uncertainties of the markets while keeping your financial objectives firmly within reach.