As I write to my clients being surprised usually makes things worse. And last weeks Federal reserve meeting was a surprise, indicating that rates would not only go up a half point in May but even more aggressively through out the year. The market felt the blow!
As Seneca, the Roman philosopher, put it, “The unexpected blow lands most heavily.”
Seneca endured a decade-long battle with tuberculosis (and two exiles by two different emperors!) because he imagined the worst so he could prepare himself for life’s possibilities. In doing so, he engineered his own death, but very calmly it is said.
Vice Admiral James Stockdale survived the POW camps of Vietnam using the same mental exercise, imagine the worst.
Rockefeller turned economic chaos into the biggest business in the world by seeing times of fear as windows of opportunity. Seems Buffett has made a career of this.
There are countless others who have done the same.
What these individuals realized is that in times of significant stress, making rational decisions with a clear mind is the ultimate asset.
The only way to do that is to expect the unexpected and prepare ourselves accordingly.
Because without preparation, our natural reaction is panic.
And panic causes mistakes.
For those of you who have known me for a long time you know I’m optimistic about the future, always, even though anything can happen in the short term.
Today is no different.
Inflation may get worse. The war in Europe may escalate further. The Fed may raise rates too quickly.
Or it may be something totally … unexpected.
We don’t know, and can’t know, what will happen next. But thankfully, we don’t need to know.
As Howard Marks put it:
“I’m not going to try to control the future. I’m not going to know the future. I’m going to try to prepare for an uncertain future.”
Preparing doesn’t mean we should attempt to eliminate all risk from our lives.
As alluring as that may seem, attempting to eliminate all risk is a risk in and of itself.
“…we encounter situations that call for us to assume a reasonable amount of risk to achieve our goals, and if we try to make ourselves ‘bulletproof,’ we may ultimately collapse under the weight of our gear.”
~General Stanley McCrystal
As an example, avoiding risk in investments leads to low returns and a high chance of running out of money in when we need it, the risk has simply shifted from now until later.
As you can imagine, there’s a sweet spot between being overly focused on risk and ignoring it completely, which is the land of preparation.
As a planner, my objective is to help you:
1. Prepare for the downside to mitigate surprise
2. Establish a “war chest” to fund near-term needs
3. Take a prudent amount of risk to achieve your specific goals
Having a plan that balances these possibilities is the only way I’ve found to stay sane during times of unquestionable uncertainty.
At some point, this will all pass and become a footnote in market history. But in the meantime, we will stay vigilant and as prepared as we can be for whatever comes next.
To your financial success.