How to Financially Prepare for The Worst Possible Scenario


How to Financially Prepare for The Worst Possible Scenario



Imagine this. You’re sitting at your desk or at home, and the power goes out. No big deal, right? It happens occasionally. But this time, it stays dark. That’s because a large-scale cyber-attack has taken out America’s electric grid.

Now what?

This may seem like the setup for a new post-apocalyptic TV series, but such scenarios are well within the realm of possibility. As Warren Buffett warned at Berkshire Hathaway’s 2018 shareholder meeting: “Cyber is uncharted territory. It’s going to get worse, not better.”

Do you have a plan in place for a worst-case-scenario event?

Recently, Barron’s published an article on this very topic to educate readers on how to pragmatically prepare for disaster – natural or man-made.

Planning for life’s scariest of possibilities and unknowns makes getting through them easier.  Now, I’m not suggesting you become an off-the-grid survivalist, but I would advise you to think about your emergency preparedness.

Do you have a “bug-out” bag of survival essentials? A stash of cash? What about a propane generator? A guard dog (preferably a German Shephard, in my opinion) doesn’t hurt. And, how about a handgun? In a cataclysmic event such as a widespread, long-term power outage, these things could come in handy.

Let’s walk through some of Barron’s suggestions. They talked to a handful of financial advisors and emergency preparedness pros who weighed in on how to prepare for a disaster and the accompanying financial meltdown.

Set your risk tolerance to a level you can stomach.

Everyone is “risk-tolerant” in a bull market. But a disaster will reveal how you truly feel about risk. If you emotionally prepare for the bad times now, it’s easier to have a rational long-term perspective when it’s happening.

Here’s how you get there:

Make a moat with your money.

You should have enough cash in the bank and a little closer at hand to cover at least two years of withdrawal needs. Consider adding bonds to your portfolio to pay into your cash account during the bad times. The goal is, with these strategies in place, no matter how bad things get over the next few months or years, you likely won’t have to sell stock to cover expenses.

Have the ability to recreate your financial life later.

Most financial firms strive to ensure that your records are safe and reproducible. But don’t put all your eggs in that basket. Back up your files, including tax returns, statements, wills and deeds. Keep your copies in a few different locations, like on thumb drives and in the cloud. This practice ensures that, if the digital financial world gets disrupted, you can recreate your life.

Make your own earthquake kit.

You should s have a few days’ worth of food, water, and medical supplies on hand in case of an emergency. Keep between $5,000 to $10,000 in cash ($20s, $50s and $100s) in a safe but accessible place. This will allow you to stay liquid even if the ATMs go down, and (gasp) PayPal and Apple Pay aren’t available.

Don’t stash things like gold. While they may project power, items like this are useless in a crisis.

“Would you saw up a gold bar to buy a couple of apples? How do you prove it’s real gold?” asks Wally Obermeyer, president and co-chairman of Obermeyer Wood Investment Counsel.

He has a point.

Take a breath and dig in your heels.

If total anarchy breaks loose, everything stated up to now goes out the window. In this anything-goes situation, you only need four important assets on hand: food, water, guns and that German Shephard.

If that sounds grim, it’s because it is. But, just…

Make a timeline.

Time has always been our biggest asset during any period of extremes. The same will be true again. Even post-9/11, the American economy recovered so well that there wasn’t any long-term (or even medium) impact on the markets. The facts show that the average bull market lasts 8.9 years, while the average bear market lasts only 1.3 years. Use these data points in your decision making, instead of reverting to heat-of-the-moment choices.

Think about the opportunities.

Maybe it sounds cold-hearted, but a disaster could be a buying opportunity. Historically, that’s what every down market has turned out to be. Think 2008 – 2009. That was one of the best investment opportunities of our lifetime. So, be sure to establish and keep multiyear liquidity in your portfolio, and not just as a protection against disaster. It can be used if things are irrationally down. And, in five years or so, you’re likely to be recovered.

Your glass isn’t half empty – it’s refillable.

We forget that our glasses are refillable – not half-empty or half-full. Our government has always been there, in one way or another, after every disaster. We have technical expertise in this country, resources and entrepreneurship. There’s no challenge or crisis that our resources can’t handle.

Have a shelter-in-place kit.

Your home is shelter, so have at least three days’ worth of water and food. Don’t forget a means to cook your meals (like a small propane camp stove). Add things like generators, gasoline, water filters, medications, first-aid supplies, and basic tools.

Don’t skimp on food.

Three days is good, but more is more here. In disaster situations that last more than three days, most people are more at risk of running out of food and water. This is the time when people start doing bad things.

Prepare your “bug-out” bag.

Think of this bag as a miniaturized version of your shelter-in-place kit. In this case, the shelter is clothing, some compact food basics like protein bars, medications, a portable phone charger (if there’s electricity), and cash. You want all of these items right at your fingertips.

Cash money.

Split that $5,000 to $10,000 in cash between your go-bag (about $1,000) and a safe. You’ll be sure to have access to your go-bag money, and if you have a few extra minutes before you need to bug out, you can hit the safe.

Electronic file backups.

The US special forces have a philosophy when it comes to redundancies: “Two is one, one is none.” Take this saying a step further and have three backups of your files. Store paper copies in a safe or safe deposit box put encrypted on three thumb drives (one each in the safe, a safe-deposit box, and your go bag), and upload encrypted files in a cloud service like iCloud or Google Drive.

Read original article here

Disclosure: This information is provided to you as a resource for informational purposes only. It is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. The information contained in this piece is not considered investment advice or recommendation or an endorsement of any particular security. Further, the mention of any specific security is solely provided as an example for informational purposes only and should not be construed as a recommendation to buy or sell. Always consult your own legal, tax or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.


Read other Articles

Tools & Calculators

Ready to talk with an advisor?