The United States has experienced its share of natural disasters lately.
Hurricane Harvey lashed at Texas and Hurricane Irma took aim at Florida. Meanwhile, wildfires in the Northwest and in California created their own brand of mayhem.
Through it all, investors wondered what effect such disasters might have on the stock market and whether they should be making changes in their portfolios in case nature’s turmoil was reflected on Wall Street.
But that’s no way to approach an investment plan – especially one you’re in for the long haul. There are always natural disasters and tragedies happening. You can’t get caught up in today’s headlines or the images you see on your TV.
Plus, disasters aren’t necessarily bad for every sector of the economy. In every crisis there is an opportunity. Many companies will benefit from a disaster, such as building and home-improvement companies because there will be a lot of rebuilding.
All of that said, there are a few steps investors can take that might help keep them from panicking when disaster strikes.
First, consider your investment time horizon. People often wonder this: What percentage of a portfolio should be invested in the stock market and what percentage should be in something safer? That depends heavily on your time horizon. A time horizon is the estimated length of time an investment will be maintained before being liquidated or sold. If the time horizon is short, a safer investment is better. But if you have money invested in a stock for the long term, it makes no sense to sell just because the market suddenly plummets.
It’s also wise to keep an emergency fund. Just as the name implies, an “emergency fund” is there to try to cover any of life’s unanticipated financial burdens. That could be anything from medical expenses to a layoff to a leaky roof that needs to be replaced. Your emergency fund helps you survive while you get back on your feet. If you have one, there’s probably no need to panic when things go awry, as long as the funds are available when disaster happens.
Take the time to educate yourself about your investments and understand what risks you’re taking or not taking with those investments. If you have no understanding about risk and return, then you probably shouldn’t be in the stock market. It’s important that you know what you’re doing and why.
Fortunately, I don’t see that much nervousness with most clients during natural disasters. One reason for that may be that their money is structured in two ways: guaranteed income – such as Social Security, a pension and annuities that can pay day-to-day expenses – and “play money” that can be invested in the market.
That way they’re not afraid of what might happen to the market because of a short-term event like a hurricane. They know they will have that guaranteed income still coming in.
Stephen Ng, founder and president of Stephen Ng Financial Group, is author of 10 Financial Mistakes You Should Avoid: Strategies Designed to Help Keep Your Money Safe and Growing. Ng is a Chartered Life Underwriter, Chartered Financial Consultant and a Certified Estate Planner. He is also an Investment Advisor Representative with SagePoint Financial, Inc., member FINRA/SIPC. He regularly holds financial management, retirement investing and insurance planning seminars at businesses, churches and non-profit organizations.
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