As you are packing for a trip to another city, you prudently decide to check the 10-day weather forecast there. If it will be cold, you pack a heavy coat. If it is supposed to rain, you bring an umbrella. You want to be prepared. Similarly, you want a ﬁnancial plan that anticipates the unexpected.
First you need to plan for sudden, unanticipated expenses, such as home repairs, medical bills, or losing a job. Many experts recommend you have at least three to six months’ living expenses saved away and readily accessible for any “surprises” that come your way. In addition, be wary of ﬁnancial products that make it hard for you to access your money if you need it unexpectedly.
Second, make sure you and your loved ones are properly protected. Depending on your situation, this can include everything from home and car insurance to long-term care and life insurance.
Third, make sure your plan factors in down markets. A well-diversiﬁed portfolio built around your comfort with risk can account for and help mitigate some of the impact of market declines.
Rainy days will happen. But the right long-term plan can keep you covered.
This article is an excerpt from a new book, the “27 Principles Every Investor Should Know,” coming out in 2019.