Preparing for the storm

Earlier this week, Tropical storm Ian passed through the region and caused much panic and chaos in the islands which were affected by the strong winds and heavy rains. Here in Jamaica the situation was no different. Those who were adequately prepared remained calm in anticipation of the possible destruction that such a turbulent system could bring. The unprepared were left to scramble trying to ascertain what would be needed to survive during and after the storm. In many cases, those who didn’t plan or reacted late, were not able to acquire the necessities to properly survive a worst-case scenario. Fortunately, Jamaica was spared the worst, but had it been different, those who were prepared would have been in a better position to “weather the storm”.

As with preparing for a natural disaster, it is important to realize and make provisions for any unforeseen eventualities that may occur in life such as a major unplanned expense (e.g., medical expense). Proper financial planning will help to reduce the panic and chaos if such a situation should arise. Having savings and investments can allow you to cover some if not all the costs associated with the unforeseen expense. This relieves you from having to determine how to acquire funding after the situation has occurred. Be prepared for these possible life “storms”.

Unforeseen circumstances can also affect our finances in other ways. As seen in recent times, your investments can also be affected by factors over which we have no control, and these factors can cause market volatility. Over the past few years, many investments have been impacted by the global pandemic, war, and high rates of inflation. None of these factors could have been controlled by the individual investor. The best approach is to prepare for such eventualities by creating a diversified portfolio. Diversify across different asset classes, industries, and regions. The lower the correlation between your investments, is the less chance of your entire portfolio being negatively affected by a single external factor.

We often look only at the negative side of market volatility. However, market volatility can also present opportunities for investors. In volatile times, opportunities can present themselves, but they may not be available for very long. The price of an asset may fall below its actual value and present a buying opportunity. To take advantage of the opportunity the investor must act quickly. As the saying goes “cash is king”, or in this case quick access to cash is important. Proper planning and portfolio allocation will ensure that the investor holds a portion of their investments in cash or liquid assets to allow them to move quickly to take advantage of opportunities.

Prepare for the possible storms in life by planning ahead and putting measures in place to ensure that you are prepared for the unforeseen. Speak with your financial advisor to determine how best to allocate your resources to withstand shocks that may be caused by a storm, and to determine your preparedness to take advantage of possible opportunities.

Dwayne Neil, MBA, is the AVP, Personal Financial Planning at Sterling Asset Management. Sterling provides financial advice and instruments in U.S. dollars and other hard currencies to the corporate, individual and institutional investor. Visit our website at www.sterling.com.jm Feedback: if you wish to have Sterling address your investment questions in upcoming articles, e-mail us at info@sterlingasset.net.jm.