🌀 Hurricane prep

Hey team.

I’ll be honest, it’s a rough Monday in the state of North Carolina.

Hurricane Helene graciously spared us, but it has caused catastrophic flooding and damage across the NC mountains (and in some situations, lake-front neighborhoods near us). We live a two-hour drive away from Asheville, which was notably devastated by Helene’s rains and wind.

As a lifelong North Carolinian, my heart is broken over the scenes coming out of our mountains – especially in a time of year when the Appalachians are their most beautiful. Whole towns have been wiped out from floods and landslides. On one hand, it’s unfathomable, but on the other hand, I feel the weight of so many familiar places and memories that have been destroyed forever.

It’ll likely take months – maybe years – to repair and rebuild. And for now, electricity, water, and cell service are limited.

My husband and I have donated $1,000 to the American Red Cross’ hurricane rescue efforts. And for every subscriber OptimistiCallie gets in the first 24 hours of this post, we’ll donate an extra $1 (up to $1,000).

Please donate – money, blood, or time – if you feel compelled to do so.

And while my mind is on my home state, I’m sending love and strength to anybody impacted by Helene.

I’m writing to you from the inner band of Hurricane Helene.

For those of you who don’t know, I live in Charlotte, North Carolina (aka the “Wall Street of the South”). Charlotte is far enough inland that we’re usually spared the worst of any hurricane.

Still, a few times every year, we find ourselves caught in the cyclone.

Right now, 50 mile-per-hour winds and sideways rain are whooshing around my house. A few branches are down in my backyard, and I’m pretty sure I just heard a transformer blow in the distance. It’s chaos, but we will be fine.

We prepared for some not-so-edge case scenarios, even though we expected the damage would be minimal. I bought bottles of water from the store and took the furniture off our porch. North Carolina is the land of lush green and gigantic oak trees, so I moved my car into an empty parking lot. Now that I think about it, we should get a chainsaw for big branches.

We knew Helene was coming for about a week, and we prepared for her arrival.

It wasn’t hammering boards on our doors and windows, but it was something.

Recently, I’ve heard a consistent sentiment from friends and family.

“The stock market is doing so well, but when is the next shoe going to drop?” (followed by a nervous, clenched-teeth look)

My immediate answer is what you’ll hear from every history-respecting Wall Street analyst:

Just because the market is at record highs doesn’t mean it’s about to crash.

It’s true. The S&P 500 has notched 902 record highs in the past 50 years. 75% of them led to an even higher market a year later.

As a strategist, our job is to emphatically tell you to just ride it out – you’re in this for the long run!

We give you pep talks lined with catch phrases, and we remind you that most market drops are inconsequential.

But today, I’m not here for pep talks or catch phrases.

I’m urging you to prepare for a hurricane, and I’ll tell you why.

There aren’t many dependable rules of thumb in finance, but the correlations between unemployment, recessions and big market drops come close.

In the past, surging unemployment has been the hallmark of economic crises.

And when the economy has entered a recession, the S&P 500 has fallen anywhere from 14 to 57%.

Today, the unemployment rate is rising. Since 70% of your country’s gross domestic product is driven by consumer spending, jobs and income are important. The Fed – those lovable, pocket-protector wearing, economy-balancing nerds in DC – may be cutting rates, but it’s still TBD if their efforts will actually be enough to save the job market.

To be clear, I am outlining the worst-case scenario here. We are not in a recession yet, and certain aspects of this environment give me confidence in the future. Plus, I’ve written a whole post on why optimism is the only intellectually honest stance you can take in the raging capitalism machine that is the US of A.

Still, we prepare for a hurricane when the radar picks up on one, not when the storm actually arrives.

Why is your portfolio any different?

On paper, a 30% drop doesn’t look too bad, especially when you know the context and the outcome. Technically, the financial crisis was a 17-month-long, 57% drop that took the S&P 500 about four years to recover from.

If you’re a long-term investor, your first thought is probably this: 

No sweat! I’m not touching this money for another decade. Buy the dip, baby!

And that would be the right thing to do, judging by seven decades of history.

But recessions can be so treacherous that logic takes a backseat to emotions. On top of that, many of us lose our jobs and our portfolio values at the same time. Our net worth and purpose in this raging capitalism machine evaporate quicker than we think. Suddenly, our backs are against the wall and we want – or have – to sell.

Of course, I don’t want this fate for any of you.

I want you to be so prepared for the nastiest of storms so you can actually buy that dip, baby.

And you have more control over this than you think, as long as you prepare for the worst while staying hopeful for the best.

Here’s how:

Make a plan. This is the equivalent of an evacuation route. Run a stress test or two. Can you handle losing 50% of your portfolio? Do you need that money soon? If so, you might want to put it somewhere other than stocks.

Pick up portfolio cushions. Not all prices fall during a recession. Treasuries and gold are two investments that tend to perform well during crises. I can’t tell you which investments would work best for your own situation, but I do know that portfolio cushions could be the difference between a rough and a devastating drop.

Clean up your cash. We all know the classic emergency fund advice. Cash is the most tangible form of value you can hold in a chaotic world. Those savings can come in handy as both a financial and emotional buffer in tough times. Just don’t save too much – you want to be able to seize opportunity, too. It’s a delicate balance.

Don’t get too freaked. You can prep for a hurricane, or you can build a bunker in your backyard and start hoarding ammo and canned food. You don’t need to do anything extreme. The market could easily climb higher from here.

Take care of yourself. Most importantly, keep your emotions in check. Hug your friends and family, take the dog for a walk, meditate, smell the flowers. It’s always a good idea to strengthen your mental resilience.

Thanks for reading!

Callie

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