October is here and the weather is trying to change from summer to fall. Of course, the ground here in Fluvanna is still saturated and squishy in most places. The gravel in our driveway is once again gathered at the bottom of the hill and needs some assistance returning to its proper place. Catherine and I have been active with our Rotary Club and with our Fork Union Military Academy Interact Club. The Interact club set itself a goal of 2,000 community service hours this year. Last year they had a little over 1,450 hours. SO how are they doing? Well so far almost 300 hours! We are so blessed to be a part of their growth as citizens. It is always amazing to us how they can set and actually work towards their goals with so much enthusiasm.
Goal setting is a powerful tool. It can help prepare us for the future. Whether that goal setting is in the area of health, fitness or finances, often the mere act of setting the goal clarifies the route we need to take to achieve it.
This month I want us to focus on another kind of goal. I want us to look at goal setting as it pertains to creating a disaster preparedness plan as it relates to an financial emergency kit. As we have seen recently in North and South Carolina and Indonesia, disasters come in many shapes and flavors: floods, hurricanes, wildfires, earthquakes, extreme winds, and tornadoes. They all have the potential to create treacherous conditions and cause devastation.
Many of us prepare for the loss associated with a disaster by purchasing insurance for our home or the contents of our rental property, but it is often inadequate. It covers many, but not all, natural disasters. For example, damage caused by flooding requires flood insurance. A standard homeowners' policy won’t cover damages caused if the ground shakes violently, for that you need a special earthquake policy or rider.
Disaster can strike with little or no warning. Early preparation is the key. However there are things that no amount of insurance can replace. There are things we need to get back on our feet after a disaster. There are also things we want our family to be able to access easily if we are injured or die as a result of a disaster. So, today I want to 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. Let's make it our goal to establish our Financial Emergency Kit by the end of October. OK?
What do I need?
As Stephen Covey said in the 7 Habits of Highly Effective People, "Begin with the end in mind." 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 in safeguarding important papers. A safety deposit box is also an option. Knowing what you want to safeguard will also inform you as to the size and type of container you need to purchase.
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 lower case), numbers, and special characters. If two-factor authentication is an option, enable it.
Cash and keys. Make a duplicate of house keys 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 wouldn’t hurt to include a duplicate credit card.
Contacts. Who are the important people in your life–family, friends, medical, and professional. 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 you are in a disaster area that has suffered extensive wind damage, electricity, cell towers and internet access may not exist for days or weeks. Remember what happened in Puerto Rico last year. In some places they still don't have reliable electricity available.
Identification. 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, the identify of immediate family members, and eliminate the need to replace important ID markers.
Important records. 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 planning, 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. If your home and its contents are totally destroyed, this photographic inventory will help out a lot with getting the proper replacement insurance dollars from your insurance company!
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 close-up 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.
(Sources: Ready.gov–Financial Preparedness, Finra.org–Lock down your Financial Emergency Kit, IRS: Prepare for Natural Disasters)
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 well-being will largely be dependent on you. Kids look to Mom and Dad for their security.
Here is a checklist for your kids obtained from UNICEF USA;
- Pack their essentials such as medicine and clothes.
- Pack their toys, favorite books, music, 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 child becomes sick and medical supplies are scarce.
Chat with your kids in ways they will understand. Be honest, 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 I 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.
Having spent almost 5 years working in disaster areas around the country with FEMA, I can tell you that the emotional toll is every bit as real as the physical losses you may suffer.
Changing gears: The legacy of Lehman
September 15th marked an ominous anniversary. Ten years ago, 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, I believe the memory of the crisis will recede. It may take another downturn that doesn’t lead to severe losses, but I believe it will eventually fade.
Can it happen again?
We cannot unequivocally say “Never.” Gone are the days when lenders were loaning for home purchases based on stated income, or as they were called, "liar's loans". Obtaining a loan now has more due diligence built into it on the part of lenders and borrowers alike. 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” in 2008. “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.”
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
S&P 500 Index
Russell 2000 Index
MSCI World ex-USA**
MSCI Emerging Markets**
Bloomberg Barclays US Aggregate Bond TR
Source: Wall Street Journal, MSCI.com, MarketWatch, Morningstar
MTD returns: Aug 31, 2018—Sep 28, 2018
YTD returns: Dec 29, 2017— Sep 28, 2018
**in US dollars
While our investment philosophy is an active trading one, remember in the long run it is 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. While heading to the safety of cash during volatility may bring short-term comfort, 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. The old adage of "buy-low and sell-high" in practice often looks like "buy-high and sell-low"!
I hope you’ve found this review to be educational and helpful. If you have any concerns or questions, please feel free to reach out to me at email@example.com or call my cell at 850-776-9209 and we can talk. That’s what I’m here for. Let me hear from you on the progress you are making on your Financial Emergency Kit! Kind Regards, Rudy