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Paranoia sets in as we start moving out of danger’s path

By STEPHEN KELLEY - MAIN STREET MONEY | Apr 8, 2020

I will never forget when I was a young man in my late 20s. It was November 1980, when what became known as the Panorama Fire which had been set by an unknown arsonist swept through large swaths of San Bernardino neighborhoods. At the time I was working as a freelance photojournalist, and I was assigned by a magazine to go out and get pictures of the devastation.

And it was devastation. Whole neighborhoods were leveled. I mean to the ground. House after house after house, completely lost. Nothing but devastation. And about three or four houses on each block that were completely untouched, looking surreal and totally out of place among the ruins. And I noticed something. Every single one of the pristine, untouched homes had one thing in common.

They all had ceramic tile roofs. This is critical because wildfires are driven by wind. When a house is burning it throws off sparks and embers. And those get caught by the wind and travel from house to house. Now, if they hit a wall or a window, they bounce off and burn out. But if they land on a shake roof, they take hold and before you know it another house if completely leveled. And for whatever reason during that time, shake roofs were all the rage in that part of the world.

My point is simple. You don’t know there is going to be a fire, but when there is, you can predict with a fair amount of certainty (100%!) that in an area of dry weather and Santa Ana winds, it’s going to be a significant event. So, if you are smart, you are ready for it before it happens. If you are, you are one of the lucky few. If not, well you can lose everything.

I believe the most pertinent question raised by this event is, had you gone through this would you rebuild with another cedar roof? Surprisingly, many people did. Go figure. 

Now we are involved in a conflagration of a different sort. One that doesn’t adhere to any established rules. One that is completely unknown. And that makes it even scarier. For this one we were not prepared, at least not enough, but after we finally figured out how severe and treacherous this pandemic is, we started to take defensive measures.

We started staying home. We stand farther away from each other now. We wash our hands a lot more now. We no longer congregate in crowds of any size. Many of us are working from home. And many of us, tragically, are out of jobs, and in need of help. Even more tragically, some people still don’t believe it’s real, or that their behavior in these times could devastate other lives, as well as their own.

But most of us are trying to do something. We aren’t just sitting around waiting for this terrible disease to catch up with us. Are we over-reacting? Probably, it’s how we are wired. Fight or fight is an instinct that is triggered in the moment. As primitive humans we usually had a split second to determine which way we were going to go. My sense is that in most cases, flight was dominant, and fight only employed when flight was not an option. I don’t know that, but it seems logical to me. 

Are we over-reacting? Time will tell. In times of unknown danger, especially danger that appears to be lethal, it seems prudent that we err on the side of caution

Certainly, the most devastating impact, other than lost lives, that this has had on our entire country and world, has been its impact on the world economy and stock markets. This is presumably what’s going to have the longest-term impact on all of us, and potentially could do permanent damage.

And what have we done to mitigate the damage done to our investments? Have you moved any of your money into cash? Have you taken a defensive position? Or are you just riding it out? If so, why? If it makes sense to take defensive action and get out of the path of the disease itself, how does it not make sense to do something to get out of the way of the financial carnage?

If you were to call an expert on disease and asked her what you should do to lower your chances of getting infected, she would give you a whole list of things to do. Why then, if you call an “expert” about financial matters, would it make sense to hear, “just ride it out”

We don’t think so. We believe it makes just as much sense to get out of the way of the market carnage as it does to get out of the way of the virus itself. But not just the virus, but any “black swan” event, like 2002 and 2008. Because we know they are going to happen, we just don’t know when.

How do we do that? We begin by determining what we want our money to do for us. We have identified three common types of monetary needs: liquidity, income, and growth. Once we know that, it’s easy to figure out what we want from each. Liquidity requires safety and availability. There is no place for risk. Income requires guarantees, safe growth, dependability, and permanence. This, too, should be free of risk. Growth requires returns, and with returns comes risk. But not just any amount of risk; only the amount you are able to handle, 95% of the time. And for the other 5%? For that we have an investment policy, written down, and easy to understand.

Now you are out of the path of disaster. When times like these roll around, you know you have enough liquidity. You know your income will remain steady and strong. And you know exactly what to do with your market-based assets.

Now. Close your eyes and imagine how that would feel right now. Now, open your eyes and do something about it.

Stephen Kelley is a recognized leader in retirement income planning. Located in Nashua, NH, he services Greater Boston and the New England areas. He is author of five books, including “Tell Me When You’re Going to Die,” which deals with the problem unknown lifespans create for retirement planning. It and his other books are available on Amazon.com. He can be heard every weekend on “The Free Money Guys Radio Hour” on WCAP and WFEA, and he conducts planning workshops at his New England Adult Learning Center, located in Nashua. Initial consultations are always free. You can reach Steve at 603-881-8811 or at www.FreeToRetireRadio.com.

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