We join the rest of the nation as shocked and saddened by last week’s events in Boston and West, Texas and we offer our deepest condolences to anyone who was impacted. The events of this past week should serve as good reminder to all of us that no matter what you do every day we face risks beyond our control. However small the risk may be there is no way to ensure that you avoid falling victim to these type of events. Also unavoidable are situations that are more likely to be faced by the broader populous like a car accident, or contracting a debilitating disease, or any number of things that can bring an unexpected early death or long term disability. Not that we should live our lives in constant fear – we should just prepare for the worst and then feel very fortunate should we end up living long and healthy lives.
Preparing for the worst doesn’t just mean acknowledging that life is fragile and then living life to its fullest. You need to prepare for such risks financially. This means assessing your exposure to risks beyond your control and then getting protection if you need it. If anyone relies on your life and/or your income stream then you need to have insurance policies to replace that income if you suddenly die or face a long term disability that prevents you from working. You need cash reserves that you can draw from immediately in an emergency. You need proper homeowners insurance. You need an estate plan that allows your finances to pass to your heirs smoothly and at a low cost.
This preparation won’t prevent you from being in the wrong place at the wrong time (and none such preparation exists), but it will help prevent financial risks from being created for your family and heirs should something happen to you.
Recent volatility in financial markets also serves as reminder that risk is also everywhere in the investment world. Gold futures prices saw their largest 2 day selloff in the history of trading on the Chicago Mercantile Exchange with a drop of almost 13% for April 12th and April 15th. Other commodities like copper, silver, and oil have also seen significant declines in the last few weeks which put them well into negative territory for the year. Stock markets saw their largest weekly decline of the year with the S&P 500 dropping 2.11%, though the index still remains up about 9.0% for the year.
We believe the best way to protect yourself from investment risk is to construct a diversified portfolio with an asset allocation that fits you, and then stick with it. Go about your daily life knowing that your investment assets can decline at any point due to reasons beyond your control, but know that your investment allocation fits you and over time it will help you meet your financial goals. The same goes for health risks – go about your daily life knowing that your health may fail or your life end short, but know that you have made preparations that will help care for your family in your absence.
And then enjoy the ride every bit along the way while we still can!
Travis Boyer, CFA