One minute, we were driving along smoothly. The next, I was staring up at a cracked windshield.
Last Sunday, my wife was driving our family home from church. As the navigator in the passenger seat, I insisted we take a detour to the newly opened Starbucks across town, so I could grab a skinny vanilla latte.
It was a breezy day, but no weather alerts, and traffic was light. We were cruising along when suddenly – BAM! – a large tree branch fell out of nowhere and landed on the windshield right in front of me.
The glass fractured into a spider web of lines. But fortunately, it held.
The windshield cracked after a tree branch fell on Brad’s family’s car
Everyone in the car – me, my wife, and the kids in the backseat – were all okay. But my wife’s six-month-old Land Rover now had a giant dent in the hood and needed a new windshield.
And I never got my latte.
We’ve all been in unfortunate situations outside our control. For example, if the tree branch had been heavier or if it hit at just the right angle, I might be in the hospital today.
Thankfully, ours didn’t have repercussions we couldn’t walk away from. We had a few things on our side working to protect us in the case of extreme circumstances outside our control.
Staying under the speed limit and wearing seatbelts ensured the accident wasn’t as bad as it might have been. Having car insurance reduced the financial impact of dealing with the damage.
The bottom line is: You can do everything right, but you simply can’t guarantee the outcome of a certain situation. So it pays to be prepared.
That’s why today, I want to share some common-sense precautions that can protect us when the unthinkable happens. Think of it like purchasing insurance. Making the correct moves now could save you a whole lot of heartache and troubles in the future.
Three Steps to Plan for the Unthinkable
In just the past 15 years, we’ve had two black swan events that crashed the financial system.
Nobody anticipated a housing crisis leading into 2008… And a new disease suddenly swept across the globe in 2020. Both these inconceivable events brought shock, fear, and devastation to many investors – across all sectors.
And once they hit, there was little anyone could do.
No one knows when the next “unprecedented” event could hit or what will trigger it. But being prepared will always pay off.
That’s why one of the most important things you can do as an investor is to manage your risk profile – before things potentially go wrong.
So I’ll lay out three simple steps investors can take to protect themselves from a stock market meltdown:
Diversify. The problem with having all your eggs in one basket is you lose all your eggs if the basket breaks. That’s why investors should never bet everything on one single company, asset, or strategy. Not even if it’s the greatest in the world.
Because there’s no guarantee it will stay that way forever. For most people, at least 10 but preferably more than 20 investments spread out across different sectors is enough to limit the damage if one or two go to zero.
Have a cash reserve. When the world goes crazy, cash is king. Whether you have a personal financial emergency or the markets decide to drop, having cash means that you’re not forced to sell at an inopportune time.
Now, that doesn’t mean hide all your money under your mattress. You need to put money to work for it to grow, after all. But keeping 5-15% of your portfolio in cash gives you a safety net and more options when times get tough.
Invest in quality. Market timing doesn’t work. Time in the markets does.
And if you’re staying for the long haul, you’ll want to own the highest-quality companies that have the greatest chance of maintaining themselves now and thriving 20 to 30 years in the future. Best part is, most of the time, these world-class companies will pay you growing dividends for staying the course.
These three steps are ones all investors should be taking within their portfolios to insure against the unknown.
And if you’re unsure which companies to invest in and which to pass on, I encourage you to continue following us here at Intelligent Income Daily. We’re always on the lookout for safe, income-oriented opportunities to bring to your attention.
Happy SWAN (sleep well at night) investing,
Brad Thomas
Editor, Intelligent Income Daily
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Source: Wide Moat Research