You must have heard the term Murphy's Law, and if history has taught us anything, it's that something imaginary and unprecedented always comes upon us. Over the past 100 years, we have witnessed Pearl Harbor, 9/11, the Great Depression and recession, and many wars. Of course, we will make a comeback, but if we can plan for these difficult times, we will alleviate the pain of these accidents.
What new catastrophes will happen next?
Cyber terrorism? Potential attacks on our power grids, financial systems or water supply systems. As Buffett warned at Berkshire's 2018 shareholder meeting, computers are the most significant weapon, "Cyber threats are uncharted territory." It will only get worse, not better. ”
Bomb attack? A radioactive bomb could render a major urban area like Manhattan uninhabitable for years.
There are also natural disasters: hurricanes, earthquakes, tsunamis, and calmer disasters like droughts.
The risk is real, even if it is low. Wally Obermeyer, president and co-chairman of Obermeyer Wood Investment Counsel, said: "Any black swan event has the potential to bring the price-to-earnings ratio down from the current 22 to 10."
We asked high-net-worth investor advisors who advised clients to take these steps in case of a black swan event.
<h1>1. Treat risks correctly</h1>
In a bull market, everyone is willing to take risks. But a disaster will reveal how you really feel about risk. Mariner Wealth Advisors' principal and senior wealth advisor Valerie M. L. Newell said: "If my new client doesn't bring up a potential disaster, I will bring it up. For example, if there is a bomb explosion and the stock market falls by 25%, how will they react? It's not just about planning, it gives me a good understanding of how the client feels about risk deep down, and it helps us determine risk parameters and asset allocation. ”
Even experienced investors are not immune to emotions. "I'm often surprised that many of my clients, who are wealthy and sophisticated, who have started and sold businesses and have gone through several full market cycles, but who also lose their sense when terrible things happen," said Spouts Powell, managing director of Kayne Anderson Rudnick Wealth Management. If you're emotionally prepared for disaster, it's easier to have a rational long-term view when it happens.
Obermeyer always says: "We tell our clients that we want them to be receptive to a wider range of investment value fluctuations." For me, the word 'acceptable' is important. Even if the customer may feel unhappy or even unhappy. ”
<h1>2. Establish a moat for funds</h1>
The bank needs to have enough cash and some money on hand to cover the need for at least two or even three years. Add a bond portfolio that can be credited to a cash account in times of recession. "In times of crisis, people flock to buy U.S. bonds and dollar currencies," Newell said, "and I suggest choosing U.S. Treasuries, as well as some quality corporate or municipal bonds, so that investors will always buy a lot of such portfolios as long as the bonds don't mature." ”
The point is that no matter how bad things get in the coming years, you don't have to sell a single stock. "When we reiterate this view for our clients, you can tell from their eyes and body language that they feel safe," Newell said. ”
<h1>3. Do a good job of financial backup</h1>
This action allows you to quickly recreate your financial life.
Financial firms spend a lot of money to make sure your records are safe and replicable. Merrill Lynch's Managing Director, Richard M. B. Jones said: "Our company's cybersecurity budget is 'whatever it takes.' "Includes day-to-day security measures like email filtering, backup systems in different locations, and (theoretically) unbreakable firewalls." Even so, no one makes any guarantees of safety.
So it's important to back up your own documents, including tax returns, declarations, wills, deeds, and keep copies in multiple locations (storage and in the cloud).
On this issue, we can refer to the "two is one, one is nothing" concept of the US special forces. Use three backups: a paper version in a safe or bank safe, an encrypted file in a storage folder (one in each vault, a bank safe deposit box, and an emergency kit), and encrypted files stored in the cloud (such as iCloud or Google Drive).
If the digital world is disrupted, you can recreate your financial life.
<h1>4. Prepare for disasters</h1>
"If you're prepared for a prolonged power outage or a 'grid down', you're basically ready for almost any disaster," said the CEO of Black Umbrella, a New York-based company that specializes in emergency preparedness.
Communication and unity. How to reunite with a family in a crisis? The company offers its customers an etched metal card with the most important telephone numbers in order of priority, followed by the addresses of four meeting points, a field contact who can answer the phone (long-distance telephone service is usually the last to be destroyed and restored first), and the telephone numbers of pediatricians, hospitals and schools.
Shelter-in-place toolkit. Native Americans had a "divine order of existence": shelter, water, fire, food. Your home is a shelter and you should have at least enough water and food to survive for 3 days, as well as tools to prepare meals (a small camping stove). You can add generators, gasoline, water filters, medications, first aid supplies, or some basic tools.
Don't skimp on food. There's a saying in MI5: At any given time, we're only nine meals away from anarchy. In other words, disasters that last more than 3 days are most dangerous for people who lack food and water – that's when people start doing bad things.
Emergency kit. This is a scaled-down version of the Shelter in Place Toolkit. In this case, the shelter is clothing, including all the clothes you need to stay warm, but also considering the weather (like a rain ponchos), some simple basic foods like protein bars, medication, portable phone chargers, and cash – all in one bag that you can get in 30 seconds.
cash. Hold $5,000 to $10,000, $20, $50, and $100 denominations and divide them equally into your emergency kit and safe to prevent accidents on your ATM machine. If you don't have time, you'll have cash for the emergency kit, but if you have a few minutes, you can get that part of the safe.
Obermeyer has a rocky mountain house near Aspen, Colorado, with a generator, propane heater and a chicken coop, as well as a plane that has been filled with fuel. However, he is not a doomsday operator. "It's not a way of life, it's more about keeping me running if there's a disaster." This highlights another useful investment: land.
What did he not reserve? Physical assets, such as gold, are useless in a crisis. Would you rather saw off a gold bar and buy two apples? How do you prove that it's real gold?
<h1>5. Stay calm and wait for the opportunity</h1>
If things get so bad that society collapses, the rule of law is lost, and everything we said before is forgotten, you only need three important assets on hand: food, water, and guns.
Time has been the greatest asset in any previous financial crisis, and it will continue to be. Powell rightly pointed out: "Any time the stock market has experienced a downturn, it will always recover and eventually set a new record." Even after 9/11 it recovered well, without any medium- or long-term impact on the market. Bear markets lasted an average of 1.3 years and bull markets lasted an average of 8.9 years. ”
It may be a bit grim to see disaster as a buying opportunity, but every downmarket in history has been an opportunity. "Even the stock market crash of 2008-09 was one of the biggest investment opportunities of our lives," Powell said. ”
Obermeyer agrees, which is one of the reasons why he is so adamant about building years of liquidity in your portfolio. It's not just about being able to protect yourself in the midst of a disaster. These reserves will be very useful if things don't make sense. After many black swan-like events, you may recover within 5 years.
There are optimistic people and pessimistic people in the world, but there is a wise man who once said that we forget that the cup can be filled again.
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Original barronschina articles, not reproduced without permission. In English, see "'9 Meals Away From Disaster.' Financial Advisors on How to Prepare for the Worst”。 The article has been slightly abridged.
(The content of this article is for reference only, investment advice does not represent Barron's tendencies; the market is risky and investment should be cautious.) ）
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