As Louisiana and Texas clean up from the disasters of Katrina and Rita, we are beginning to understand the toll the storms took both in human lives and in the homes and infrastructure of the Gulf Coast and the wonderfully unique city of New Orleans. It will still be some time before we understand the full economic impact of the hurricanes and see how many businesses and jobs were lost in the tragedies.
No one is immune to disasters. Crises can arise from anywhere, whether they are natural, man-made or economic; a company or industry imploding can also wipe out a way of life for many people. Since these things can strike without warning, the time to deal with a disaster is before one ever hits. As former British prime minister Margaret Thatcher said, “The unexpected happens. You had better prepare for it.”
But as long as you are well-prepared, you should be able to endure whatever nature throws your way, without a permanent effect on your financial well-being. The key is to prepare your checklist of preparations now, before the crisis hits. Just as you can’t stock up on canned goods and drinking water after a hurricane strikes, you can’t expect to get your financial house in order after an economic crisis hits.
Obviously, you should make sure you are properly insured, not just with property and casualty insurance to protect what you own, but with life and disability insurance as well, to protect your future well-being. If your standard of living has improved in recent years, make sure your insurance needs—for both life and property—still cover the way of life to which you’re now accustomed.
If you are forced from your home in an emergency, there are certain things you will want to make sure are safe: your estate planning documents, insurance policies, and banking and investment records, as well as personal property such as irreplaceable photos or your grandmother’s ashes. It’s a good idea to make a list and store it in a safe place when times are calmer, so you can get everything ready at a moment’s notice.
Once you have that list in hand, consider the following: How many of these items can be stored at a distant locale, either electronically or in hard copies? If you’re faced with a flood or fire, even a safe might not be enough to protect your documents and to make sure they are readily accessible. You might want to give a set of key documents to one of your children–one who lives far enough away so that the same natural disaster is unlikely to strike you both.
Make sure one of the items you keep with you is a document such as a utility bill that shows your current street address. In the aftermath of Katrina, many area hotels required people in New Orleans to show proof of residency in order to stay there. And you may even need to show such proof to be allowed back to your home during cleanup.
There are also ways to protect your investment portfolio before a natural, man-made or economic disaster as well. Diversification, always a must, becomes even more important when industries or sectors get battered after a crisis. Therefore, you must not only be diversified among equity sectors but among asset classes as well; remember, a well-diversified portfolio is not the same as a properly allocated portfolio. A prudently diversified and properly allocated portfolio should help you get through the hard times.
This is also a good time to teach—or to reinforce in—your children the principles of philanthropy. As we mentioned in our last newsletter, giving to those less fortunate is an important lesson to pass on to the next generation, and there are certainly many people in need right now. In addition to making donations to the better-known relief organizations such as the American Red Cross, you might also want to contribute to the Louisiana Disaster Recovery Foundation. Don’t forget, though, that overwhelming disasters such as Katrina and Rita have a way of sapping donations to other charities that are just as worthy. The people who needed your help before Katrina still need it now.