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Is it time to re-evaluate your risk tolerance?

Apologies to you if you have looked for my thoughts in this space and haven’t found them for a couple of months. I have been on a self-imposed hiatus while I did some healing from a couple of hospital trips.   No, it hasn’t been the coronavirus that sent me there, but my digestive tract problems that have been a life-long issue or three. Nothing that couldn’t be fixed — but things that took a little cutting and some time to heal. Thanks for the prayers and support from you that have done so. As to the coronavirus, what a mess this has been… and is. I harangue you constantly about planning, but how could we plan for this?

Shocking NewsCould we have planned for the coronavirus outbreak?

Well, I know some “preppers” that have planned and worked to prepare for an apocalypse — either extreme war or disease, for example — and they have successfully stored enough food and water supplies to have dropped out of society for a time. But it’s the rare bird who could, or would want to, survive alone indefinitely. Charlton Heston lived a desolate and finite existence in The Omega Man, didn’t he?

Society is changing rapidly

No, I think there is a more moderate and useful plan we will all learn from this medical emergency experience, some details of which are still unclear. We will need to have basic needs in a little greater supply; food and clean water being two examples. Tools to purify water from suspect sources is probably another. Thankfully, we have also relearned the proper way to wash our hands! However, we won’t be able to hoard all the supplies we need or want, will we? Hoarding toilet paper made no sense to me until my wife conjectured that people went to stores to buy hand wipes, found them all sold out, and felt a compulsion to buy something. It’s as good a theory as any.

Not many of us foresaw the government and press-fueled fears enabling the shutdown of a healthy economy, like flipping an off switch. Or could we? Michael Crichton wrote about it years ago in The Andromeda Strain, but we call that “fiction.” Many of us grew up in a time fearing (rightly so) nuclear war. That could flip life as we know it upside down in an instant.

Toilet Paper RollsHow the COVID-19 outbreak can help society plan for the future

But what do we learn from a crisis that we expect to recover from in time? How does our recent experience teach us to prepare financially for the next crisis? While we probably can’t define what precisely will set off the next financial meltdown, we should always be prepared for a potential recession… and/or a depression! Bear markets are nothing new, nor are rapid stock market declines.   Our recent investment portfolio declines have been unpleasant, but they should not have been unforeseen. Never fall in love with a high-water mark in the market — it won’t love you back!

For financial planning, re-evaluate your risk tolerance if needed

This, then, is an opportune time to re-evaluate our personal risk tolerance. It’s not theoretical now, we see it in our account balances. If those numbers keep you up at night or upset your stomach, it’s a sure sign you should re-evaluate. It’s also a good time to also address how much cash you need on hand, for a period of X months or years. “X” is your number — there is no universal number. You’ve heard useful rules of thumb, but there is not an answer that fits everyone. It depends on your needs and your comfort zone. You have to determine “X”, but I am here to help talk it through with you.

So I once again encourage you to take care of the basics: wash your hands, revisit your personal and financial plans, love your loved ones, and trust in things eternal.

Please be well. I’ll try to do the same.

 

April 2020

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