Business Monday

What Hurricane Irma can teach us about financial planning

Like many South Floridians, I couldn’t decide whether to stay at home or leave town when Hurricane Irma threatened the region. I had lived through Hurricane Andrew at the age of 22, weeks after my father died, and it was one of the most traumatic times in my life.

Finally, the nonstop barrage of frightening headlines about Irma’s destructive power led us to a last-minute decision to evacuate. Because we delayed until the day before Irma’s winds arrived, we weren’t fully prepared and left some important items behind.

Fortunately, we returned to find the house undamaged, and dealing with the outdoor cleanup, lack of power and loss of the internet were relatively minor problems in the scheme of things. Looking back on Irma from my perspective as a professional financial advisor, I believe there are some important lessons about money that we can learn from this damaging and deadly storm.

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Andrew Menachem, CIMA®, is a wealth advisor at The Menachem Group at Morgan Stanley in Aventura. .

▪ Whether facing a hurricane, saving to buy a home or investing for a comfortable retirement, it’s vital to plan ahead, rather than get caught up in events. That means making a list of the essential items you would need to prepare for another major hurricane, and determining where you would go in an emergency. Having a disaster plan in place can help guide you through a very stressful situation.

Planning for your financial future may not have the same level of urgency, but it is also very important. While you might know you need to set aside a portion of your current income for savings and investments, it usually takes a financial plan with a step-by-step approach to begin the journey toward achieving your personal goals.

▪ Don’t get caught up in the 24/7 news cycle. Watching the latest hurricane updates on your TV, computer or mobile device is likely to increase your overall level of anxiety. If you have prepared in advance for a bad storm, try to resist the impulse to wait in line at a gas station just to top off an almost full tank or rush from store to store in search of extra batteries.

The same holds true in the financial sector. A 24-hour business channel has to come up with a steady stream of market and investment news in order to attract viewers. Those commentators’ predictions can cause you to forget about your long-term plan and buy or sell assets at the wrong time. Talk with your advisor and make decisions with your brain, not with your emotions.

▪ Understand the risks. With Irma, a direct strike on Miami would likely have devastated much of South Florida. However, the western shift in Irma’s track reduced the wind and storm surge damage to Miami-Dade and Broward. That was not the case in the Keys, which will take many months or even years to recover.

In financial matters, many investors focus on the “worst-case” scenario, such as a steep drop in the stock market. But making investment decisions based on fear (or greed) can be a serious mistake. It’s much better to set your emotions aside and carefully assess the upside and downside probabilities.

In trying to avoid the risk of sudden loss in value, investors who turn to bonds, cash and other less volatile assets face another set of risks. Typically, these types of assets deliver much lower returns than stocks or other growth-oriented assets. They may also fail to address the issue of inflation, which can erode the purchasing power of your assets.

Therefore, many investors choose to address the multitude of risks in the financial world by avoiding “all or nothing” decision making, and building a diversified portfolio of assets, such as stocks, bonds, cash, real estate and other assets.

▪ Keep cash available for emergencies. In the days before Irma, many residents stocked up on cash, knowing that banks, ATMs and debit/credit card readers can’t operate without electricity.

The same lesson applies when building an investment portfolio. Being able to quickly tap liquid assets like a money market fund can help you make it through an unexpected financial emergency.

▪ Don’t try to do it all yourself. After Irma, many South Florida homeowners needed tree-trimming crews to clear their power lines so life could get back to normal. Others needed professional assistance repairing damaged roofs or filing their insurance claims.

It’s the same in financial matters. Consider building a support network that includes an accountant, attorney and financial advisor who can provide guidance on complex tax, estate planning, investment and wealth management matters.

Finally, we should always remember what’s most important in life: our families, friends, neighbors and colleagues (as well as our pets). Staying safe in a hurricane or in any type of emergency is the highest priority. You can rebuild a damaged home, recover from a loss to your portfolio, but we can never replace the people in our lives.

Andrew Menachem, CIMA®, is a wealth advisor at The Menachem Group at Morgan Stanley in Aventura. Views expressed are those of the author, not necessarily Morgan Stanley, and are not a solicitation to buy or sell any security. The strategies and/or investments referenced may not be suitable for all investors. Follow Menachem on Twitter @AMenachemMS

Other recent columns by Andrew Menachem:

If you’re over 50, it’s time to get serious about retirement planning

Take an active approach to investing in retirement

Consider taxes in your investment decisions

How to talk to your aging parents about money

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