This is a monthly column in Mint by Priya Sunder, Director and Co-founder of PeakAlpha.

During a recent visit to the Maritime Museum in Lisbon, Portugal, I stood before a life-size sculpture of Vasco da Gama. With limited navigation tools, incomplete maps, and only an obscure sense of the uncharted world ahead, I wondered how he might have prepared for his voyages. 

More than five centuries ago, when da Gama set sail for India, his ability to foresee danger was limited. Drawing on past explorations, he would have prepared for the risks he could imagine: treacherous storms, giant waves, jagged coastlines, pirates, or dwindling supplies of food and water. These risks were visible, and clearly frightening. 

Yet one of the greatest dangers of da Gama’s first voyage to India was one he did not anticipate. Midway through the voyage, his sailors’ limbs and gums began to swell and bleed; many grew weak and died without warning. Only much later was this deadly affliction traced to scurvy, a disease caused by a deficiency of vitamin C. 

It made me ponder on how we prepare for risks we do not yet realise. We spend so much time worrying about the risks we can see: the sudden market fall, the interest-rate change, the currency movement, or the outbreak of war. But the risks that shape our financial lives most profoundly often build quietly over years. They hide in ordinary assumptions about income, expenses, health, and lifespan—until one day they become impossible to ignore. 

My 80-year old neighbour’s retirement became a vivid example of this insidious risk. When he retired more than 20 years ago, he worried about market volatility, inflation, managing cash flows, and funding medical or sudden expenses. Today, his biggest concern is different: whether he may live much longer than planned, and whether his money will last till he is 100. 

With better healthcare and longer lifespans, longevity has become one of the most underestimated financial risks we face. It is no longer enough to plan for retirement at 60 and assume life will end around 75. Funding 15 years of retirement is very different  from funding 40 years—especially while trying to maintain today’s standard of living at tomorrow’s prices. 

We are used to thinking of risk as market volatility. We define it narrowly by how asset prices move- equities fluctuate, so they feel risky; fixed deposit rates do not visibly fluctuate, so they feel safe. But price volatility is only one form of visible risk. The deeper invisible financial risk is that your money may fail to meet your needs when you need it most.

An annual spend of Rs. 12 lakhs today could rise to nearly Rs. 32 lakhs in 20 years at 5% inflation, slowly eroding purchasing power. A 15% market decline is certainly a risk. However, a 40-year-old can withstand such risks. He still has levers to pull-he can earn more, save more, reduce expenses, or invest more aggressively to build a larger nest egg. He still has 20 years of cash inflows, and 40 years for the investment to recover and grow. But for someone in their 70s or 80s, those levers become far less flexible. The greater unseen risk is when recovery may not be possible. Or, if the 40-year-old had reacted too defensively to a market correction—moving the entire portfolio into “safe” assets, he would have quietly lost purchasing power over the next several decades.  

Often, a safe portfolio may not support a safe life. The result may be a retirement corpus that cannot support the withdrawals needed. He may have needed to draw down 6% of the portfolio annually to meet expenses, while the portfolio can safely sustain only 3% without running out during his lifetime.  

The same applies to insurance. If an individual is the sole earning member of her family and has only Rs. 20 lakhs of life cover against a requirement of Rs. 2 crores, that gap remains invisible until the day it is exposed. By then, it is too late to correct. 

Financial risks can be managed in four broad ways: 

• Retain risks that support long-term goals. A measured exposure to equity may be worth retaining because it can help create future wealth. 

• Reduce risks that are too concentrated. If too much wealth is tied to one asset class, business, or property, diversifying the portfolio can lower the impact of any single setback. 

• Eliminate risks where possible. Repaying a loan removes that liability from the portfolio and reduces the pressure on future cash flows. 

• Transfer risks that could cause severe financial damage. The financial consequences of life and health risks can often be transferred to an insurance company through adequate cover. 

Da Gama and his sailors prepared for risks they could see, but were caught unawares by an unseen risk lurking within them. We can worry constantly about the market fall, interest rate, or energy prices; yet the most successful financial plans are the ones that navigate not only the visible storms, but also the hazards of the reefs hiding just beneath the surface.  

Priya Sunder is the co-founder and director of PeakAlpha Investments.