Hurricane season runs from June through November each year, with the peak time occurring in late September. The season is very predictable; however, the number of actual hurricanes, their intensity and path are not. Even though the path is unpredictable, there are defined areas that are likely to be affected periodically by hurricanes. People living in those areas should prepare well ahead of time for the inevitable storm that is sure to come their way. I imagine that most have some type of plan to either evacuate or ride out the storm. However, I am quite sure that the next time a storm is nearing landfall we will see video of totally empty grocery shelves and sold out signs for generators and plywood. During and after the storm we will hear and see tragic stories of those who did not evacuate or plan for the worst. There will also be many who were prepared but still suffered losses.
Some financial forecasters are also predicting turbulent times ahead for the economy and stock market. We have seen the stock market reach record highs several times this summer, as well as increased volatility. After ten plus years of a growing market, it does seem that we are due for a downturn. Ups and downs in the economy and markets are as inevitable as a hurricane during hurricane season, but much harder to predict when and to what degree. In East Tennessee I don’t worry much about hurricanes. However, we are all subject to the effects of recessions and bear markets, and need to prepare in order to minimize the impact on our current and future financial situation.
So, how to prepare? I believe the first thing is to place a priority on preparing without procrastination. Don’t let the urgent things in life crowd out the importance of preparation. It will be much harder to make wise decisions in the midst of a storm. Below are some items to consider in your planning:
- Build up a cash reserve of six months or so of spending.
- Avoid using debt to make purchases and work to pay off credit cards.
- Evaluate your long-term (retirement) savings plan. Make sure you are saving enough so you can have the choice whether or not to continue working at some point. If you have access to an employer retirement plan make sure you contribute enough for any matching amount. It is free money.
- Evaluate the allocation between stock and bond/cash securities in your investment portfolio. After 10 years of very positive stock market returns (especially the U.S.), you may be over-weighted toward the stock market. It is very important to have an allocation that will give you enough return over 20 to 30 years, but not expose you to more risk than you can tolerate. The time to adjust this allocation is now, not when the market takes a big drop.
If you need help in making these evaluations and plans I believe it is wise to find a financial advisor that you trust. They can work with you developing a plan along and reviewing the plan with you as markets change.. Look for an advisor who is a fiduciary and puts your interests first rather than someone who is just selling a financial product to you.