All too often you hear the unfortunate story of a backcountry skier, snowboarder, or snowmobile rider that was killed in an avalanche. The lucky ones are buried, but quickly rescued. They report the harrowing tumble down the mountain, the overwhelming weight of the snow, and the feeling of utter helplessness.
We have seen too many people get caught in financial avalanches that have the same feeling of fear, heavy weight, and hopelessness. What can you learn from their experiences that may help you protect yourself from a financial avalanche?
1) Chart your course: After a big storm, backcountry adventurists will feel the urge to “shred” the powder. However, excitement may open the door to danger if one heads out without doing the homework or creating a plan. You need to understand what risks exist and then chart a course that will keep you away from potentially hazardous slopes. Investors that put all of their assets in one “hot” area risk being buried. We have seen retirement dreams destroyed. To help protect your assets, you can employ a certified professional guide. While they can’t guarantee that there won’t be avalanches, they can help guide you out of danger’s path.
2) Make course corrections: Any skier knows that you rarely take the exact line down the mountain that you envisioned. That is due to obstacles, changes in terrain, or skier error. Your financial plan needs to have a balanced approach that can still help get you where you need to go despite the minor variations in your path.
3) Take the right amount of risk and stick with it: Investors that pull out at the bottom and never reinvest are like skiers that decide to ski down the mountain and then hike back up because the ski lift is too risky. With the current environment, some investors feel nervous and look for investments that don’t have any risk. While this may be a good approach for some of your assets, it is rarely a good approach for all of your assets. Make sure that before you get into a new investment, you understand all of the risks. Be cautious with investments that lock your money up for 7-10 years.
If you feel like you have already been buried by an avalanche, there is still hope. You have friends that can help dig you out and get you back on track.
Learn from the experiences of others and don’t become the victim of a financial avalanche.