Floods, hurricanes, wildfires, earthquakes, extreme winds, and tornadoes all have the potential to create treacherous conditions and cause devastation.
We prepare with insurance, but it is often inadequate. It covers many, but not all natural disasters. Flooding requires flood insurance. And a standard homeowner’s policy won’t cover damages caused if the ground shakes violently.
Disaster can strike with little or no warning. Early preparation is the key.
Let’s focus on the importance of building a financial emergency kit. The time to create an emergency kit is today, when the skies are blue and the winds are calm.
What do I need?
Consider purchasing a box or safe that is fireproof and waterproof. You can’t guarantee it won’t be damaged during a disaster, but it will go a long way toward safeguarding important papers. A safety deposit box is also an option.
Store electronic copies of important documents on a USB drive. Even better, upload them to a password-protected, cloud-based system. And be sure to create a strong password that is unique. Include letters (some caps, some lowercase), numbers and special characters. If two-factor authentication is an option, enable it.
Cash and keys.
Make a duplicate of house and auto keys. You may also need cash in the immediate aftermath of a disaster. ATM cards may not work and not everyone is prepared to take a credit card. Still, it won’t hurt to include a duplicate credit card.
Who are the important people in your life — family, friends, medical professionals? Create a list with telephone numbers, emails or other contact information.
You may store the information electronically, with the appropriate security precautions, but it’s recommended that you place a paper copy inside your kit.
If disaster strikes, you may be asked to confirm your identity to obtain disaster relief services, file insurance claims, or get access to your property and financial assets.
Your kit should contain essential documents, including extra originals or copies of a passport, driver’s license, birth certificate, marriage certificate, adoption records, Social Security card, green card, any military records, and pet ID tags.
These will allow you to establish your identity and the identity of immediate family members, and eliminate the need to replace important ID markers.
We have copies of your financials, but this doesn’t preclude you from safe harboring your records.
A short list of financial documents that can fit into your kit includes mortgages; property deeds; and legal documents such as a power of attorney, estate plans, wills, and insurance policies.
Also include recent bank and credit card statements, brokerage accounts records, and statements related to investments that might be held outside a brokerage firm (such as mutual funds or 529 college savings).
If you access accounts or documents online, include a list of password hints. Also, pack recent retirement account statements and your most recent tax return.
A password-protected flash drive or file might be safer than hard copies — as long as you have a way to access the files. If you receive electronic copies of bank and brokerage statements, it is advisable to place recent copies in your kit.
What are your valuables?
Create an inventory of your personal belongings. Assemble a paper, photo, or video inventory, and put it into your emergency kit.
Be sure to save receipts for major items, home upgrades or any appraisals of valuable belongings. For your household items, record what’s in each room. For major items, write down serial numbers.
While you’re at it, record the cost. Take closeup pictures of valuables, including details such as serial number tags. You can also videotape your belongings with a narrative description of the relevant information.
If the project seems overwhelming, you may start by tackling one room at a time. If it’s ever needed, it will help you maximize benefits from your insurance policies and expedite the claims process.
What about your kids?
A disaster will take an enormous mental toll on you. Having your financial house and records in order will remove one burden. But what about your children?
Your children’s wellbeing will largely be dependent on you. Kids look to Mom and Dad for their security.
Here is a checklist for your kids:
- Pack their essentials such as medicine and clothes.
- Pack their toys, favorite books, music, and electronics — and have fresh batteries.
- Talk to your kids about what to expect at a shelter.
- Develop a system with your children that will allow them to be identified if they are separated from you.
- Learn basic first aid skills in case you or your kids become sick and medical supplies are scarce.
Chat with your kids in ways they will understand. Be honest and reassure them, but don’t make promises that aren’t realistic. Just as important, let them know there are resources available that will assist your family.
While we sincerely hope you never experience the pain that comes with the loss of property or worse, we are here to assist. Taking proactive steps in advance can help eliminate one source of uncertainty in the event disaster strikes.
Changing gears: The legacy of Lehman
September 15 marked an ominous anniversary. Ten years prior, Lehman Brothers declared bankruptcy, sparking a financial crisis that engulfed the global economy.
Lehman’s failure could easily be described as a “systemic event.” That’s financial jargon for an event that triggers severe financial instability and sends shockwaves through the economy.
Economically, we’ve recovered from the downturn. Unemployment is low, and GDP is above pre-crisis levels. Major U.S. market indexes have topped pre-recession highs, but the crisis left an indelible mark on investors. For some, the scars remain.
While today’s bull market pushes higher, some investors fear a repeat. You see it every time the market experiences a correction, or a decline of at least 10%. One day, we believe the memory of the crisis will recede. It may take another downturn that doesn’t lead to severe losses, but it will eventually fade.
Can it happen again?
We cannot unequivocally say, “Never.”
Gone are the days when a borrower needed only a pulse to obtain a mortgage. OK, that’s a bit of an exaggeration, but you get the idea. Whether you blame it on the banks or blame it on borrowers, too many folks jumped into or were placed into loans they couldn’t afford or didn’t understand.
Today, banks are much better capitalized than in 2007. The major banks have a much bigger cushion to absorb loan losses. And underwriting standards for home loans are more realistic.
During the Fed’s quarterly press conference, Fed Chief Jerome Powell was asked about financial conditions.
Powell said, “The single biggest thing I think that we learned was the importance of maintaining the stability of the financial system.” It’s something that was missing back then.
“We’ve put in place many, many initiatives to strengthen the financial system through higher capital, and better regulation, more transparency, central clearing, margins on unclear derivatives, all kinds of things like that, which are meant to strengthen the financial system,” Powell added.
These measures won’t prevent another recession, and systemic risks haven’t completely abated, but the financial system is in a much better position to withstand a shock than it was in 2008.
Table 1: Key Index Returns
Source: Wall Street Journal, MSCI.com, MarketWatch, Morningstar
MTD returns: Aug 31–Sep 28, 2018
YTD returns: Dec 29, 2017–Sep 28, 2018
*Annualized ,**in U.S. dollars
It’s not about timing the market. It’s about time in the market, diversification, and the balance between riskier assets (such as stocks) that have long-term potential for appreciation, versus safer, less volatile assets that are less likely to appreciate.
Headlines can create short-term volatility. We saw that earlier this year, and we’ve seen it at various times in recent years. But patient investors who stuck with a disciplined approach were rewarded. Longer term, stocks historically have had an upward bias.
A Fidelity study stated, “Investors who stayed in the markets (during 2008) saw their account balances — which reflected the impact of their investment choices and contributions —grow 147%” between Q4 2008 and the end of 2015.
It continued, “That’s twice the average 74% return for those who moved out of stocks and into cash during the fourth quarter of 2008 or first quarter of 2009.” Even worse, over 25% who sold out of stocks during that downturn never got back into the market.
Yes, the safety of cash during volatility may bring short-term comfort, but opting for the sidelines can have long-term costs.
The opposite is also true. Don’t become overconfident when stocks are surging. Some folks feel an aura of invincibility and are tempted to take on too much risk.
That gets them into trouble, too.
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