The pictures are heartbreaking as destructive wildfires continue to sweep across much of the western United States. In fact, as of mid-July, there were more than 50 large fires currently burning almost 1 million acres. And for 2021, there have been over 33,000 fires – the most in over a decade – destroying almost 2 million acres, according to the National Interagency Fire Center.
How would you react if the news came that a fire was heading in your direction? Would you scramble to protect your home and family, uncertain of where to begin?
Or, would you calmly pull out a detailed plan for such emergencies? Would your family be ready to evacuate quickly with essential supplies? Would your house be secure?
Plan for Disaster
Planning for a disaster is no different from other measures you probably take to protect yourself and your family from potential hardship, such as insuring your life, saving for retirement, and getting regular medical check-ups. But preparing for a disaster does take a small investment of time and money. Even a very basic plan could one day save you and your loved ones from ruin.
But maybe you live far away from the wildfires and think you don’t need to plan? Think again.
A Financial Fire Drill
Here is a smart move that every investor can take: conduct a financial fire drill with your financial professional. That’s where you go over what can go wrong, because it has before, and how you react.
Why? Because preparation can thwart panic. And panicked people can make rash and foolish decisions.
Clearly, reducing the inevitable panic can be vital if something goes wrong, whether it’s a fire, a collision or some other catastrophe. Because you never know when disaster will strike.
Every investor should consider going through a life-saving financial drill with their financial professional. You should talk about the bear markets that have occurred since the 1940s to work towards not being surprised when these slumps happen (a bear market is when stock prices decline by 20% or more). You should understand the reasons behind our past recessions, as well as its definition (a fall in GDP for two consecutive quarters).
A worthy goal is to understand that emergencies are more common than most believe, so you will not be surprised when they occur.
Planning Matters
During this financial fire drill, consider going over what needs to be done during those bear markets so you can still manage your financial goals. Talk about how during the inevitable bear markets – which occur every few years – you might rebalance your portfolios and consider purchasing additional investments of whatever has become suddenly cheaper.
Here’s the thing: bear markets are normal for investing and so are the doom-finders that will describe the downturns as the end of the world. These pessimists may insist that the current slide is unprecedented, saying: “It’s different this time.” Those are potentially the most dangerous words in investing. Recoveries usually follow.
Unfortunately, some investors may sell all their stocks and park the diminished proceeds in cash, where it earns next to no interest. When that recovery comes along, they may be out of the market. Hence, they potentially lose two ways.
Firefighters want you to understand the potential risks and the appropriate actions to take in an emergency.
The same holds true for investors.
Are you ready to conduct a financial fire drill?
The Arise Wealth Advisors are here to help you prepare for your future. Click or tap the image below to reach out with any questions!
Important Disclosures
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.
This article was prepared by FMeX.
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