Investing and financial planning are often the center of my thoughts in this space. My events of dealing with a severe storm called a few similarities to mind. Irma is now over, and personally living on the west coast of Florida, this was the test of our hurricane preparedness as individuals. I am happy to report that we are safe and totally okay after the storm. Yet, while going through the event, our emotions and so called preparedness were called into question. The correlation between investing and having a sound financial plan kept coming to mind as we went through this emotional event.
First, we felt that, based on constant news reports and advance warning that we could rely on the information to make decisions. Nothing could be further from the truth!! Every time the eye of the storm shifted emotions of relief and concern alternated shifting our outlook on what we should do. Early on we discussed getting on a plane and flying to Minneapolis. We decided not to when it looked as though the storm would shift east. Bad decision, in the long run, it turns out! Similar to the investing beliefs that an investor may feel they can roll through difficult markets during the calm, but waivers when reality sets in. Research shows that our “reptile brain” that processes our “fight or flight” emotions makes all reason go out the window.
When the news reports of the storm shifted the direction of the storm to the west we decided to leave our island community to the mainland to a hotel. Phew! The problem was that when you wait, the options are limited and the hotel we ended up clearly had no intentions of increasing its star rating. Just like during market turmoil, our options were very limited, yet, a better solution than staying in place. It is also hard, once an investor endures volatility, to employ a less volatile strategy. After all, in investing, after the hole has been dug by a downdraft in the markets, the only way to get back to even is to hang in there. Best to prepare an optimum strategy in advance to dampen the impact of a decline in the investment markets. Best to prepare in advance.
Then it appeared that the storm had shifted to be a direct hit. New decision! Go or stay? Staying meant a likely loss of power even on the mainland. Not ideal! Leaving now would mean issues with traffic etc. A decision was to be somewhere with power. Atlanta. A normal 6-hour trip turned into 13 but we made it safe and sound.
As things turned out, Irma shifted again, at the last minute and our area did not get blasted as we feared. While the result tried out okay, a better plan was to have a better plan. A plan that would avoid the emotional turmoil that was fed by the constant influx of information, that seemed knowledgeable but in reality did not help at all. Just like the daily financial information, it was data, but it was not having a sound plan to act on. A sound plan that is well thought out and overrules emotional responses that are inevitable during times of great uncertainty and are likely to spawn an emotional response when an emotional response is the worst choice, not the best.
I am happy to report, from a business perspective, we did not miss a beat. All functions happened as expected. I was very touched by those who reached out with concern. Our plan for the next hurricane? Get plane tickets and get out of dodge. We can operate very well with electricity and cell phone coverage. No decision next time. Just go! The best time to avoid the impact of volatility in the investment markets is before the event occurs not after. The markets have had a great run and may have more to go. Broad based diversification is the best solution for long-term investors who use their portfolio’s for real life needs. Let’s discuss your strategy soon!