As a Florida native and South Florida resident seeing the store shelves empty and people stock up on supplies out of fear is eerily reminiscent of the days leading up to a hurricane. Last year, as a ferocious category 5 hurricane pummeled the Bahamas just 100 miles off the South Florida coast the fear and concern were as thick as the humidity and preparation efforts went into overdrive. Windows were boarded up, car gas tanks filled, and the aforementioned food stocks filled. Fortunately for the SE coast, Hurricane Dorian stalled - to the utter devastation of the NE Bahamas - and turned north. We avoided the catastrophic event that could have occurred. Of course, this is not always the case as we have been struck with bad to catastrophic storms where preparations were critically important.
It’s not just the immediate preparations that dictate how well we weather a storm but also the preparations that take place before the storm was ever conceived. For South Florida residents that means constructing houses of concrete blocks instead of a wood frame, installing hurricane-proof windows, and having generators to supply power. All of these things make us far more resilient to the chaos at the moment and can mitigate many of the damaging effects of a storm.
The same holds for the COVID-19 pandemic and our financial wellbeing.
We must take action to best protect ourselves from market shocks caused by the pandemic, avoid divesting money meant for the long term, and not get caught in the daily noise found on CNBC. Yet, our resiliency to financially weather this crisis is more likely predicted on our preparation and planning long before this crisis originated.
Did we seek advice on and have a plan for...
Cash management. During a crisis, it’s important to know where you can cut spending and by how much, Make sure you know how much you bring in each paycheck and how much of that goes out or can be saved.
Diversification. Don’t put all your eggs in one basket to avoid concentration risk. I recently spoke with an advisor who said the only defense against severe market volatility is diversification.
Personal Benchmarks. Define your number, the portfolio return you need, usually over multiple decades to see your plan to fruition. This reduces the importance of market returns in shorter periods. One’s frame of reference changes making you more resilient to severe market events
Distribution strategies. Severe market volatility is often toughest on those in retirement who count on partial liquidations for income. Having a distribution strategy, where a year or two of needed income is put in stable liquid assets is vital in a crisis. The importance of mitigating the impact of market volatility, whether mild or more severe, on distributions, cannot be understated.
The eye of the storm is calm as the hurricane’s center passes over providing a brief respite from the chaos. As we navigate this pandemic, we need to make smart decisions, heed the advice of experts for our health and financial well-being. As we find calm moments, maybe between games of Parchisi and binge-watching Netflix we can reflect on how we might better prepare in advance for the next crisis, whether personal or global, and recognize how the comprehensive advice of a financial advisor can help us better prepare for whatever lies ahead, in both good times and bad.
The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a registered investment advisor.
Tagged: Tom Rieman, practice management, financial wellness