It’s funny the difference a few months can make. Previously when browsing personal finance sites such as reddit, the common advice was bullish.

• “Who needs an emergency fund? Put it all in stocks”

• “If you’re buying a house you don’t need to move your Kiwisaver to conservative until one year away from the purchase”

• “One month emergency fund is all I need”

• “You don’t need bonds in your potfolio”
  

Now how their tune has changed. More people are now suggesting:

• Having your emergency fund somewhere safe

• Moving your Kiwisaver to cash 3 years out

• Bigger emergency funds

• Ensuring you have bonds in your portfolio
  

The sentiments in the second list have of course been bought on by the economic disruption caused by the covid 19 pandemic. It has given many people who were playing with fire and taking on too much risk a swift kick up the bum. Often the best way to learn by the way!

It is this second list of being prudent that many of us should be following before things turn to custard. While things are still good.

We have a tendency to get too complacent in the good times. 2009 to early 2020 is a long time for a well performing economy and stock market. We forget what it was like to have bad times. As such, we take on risky behaviors that we actually believe are not risky because we forgot what risk is, or have never experienced the impact. When all assets are performing, risk goes out the window. Everyone gets greedy and don’t want to miss out.

Then bam.

In the blink of an eye an economy can turn, and we aren’t prepared. Unlike the grasshopper, we forgot to prepare for leaner times.

Very few saw this coming.

Therein lies the problem.

We should expect leaner times. They happen. And frequently. I expect to see at least 5 more recessions in my lifetime.

By trying to take too much advantage of the good times, we can leave ourselves exposed to the bad times, suffering big losses.

It’s best to have a plan that can best survive in all seasons. Sure, it may mean a bit less returns when times are good, but it will also mean much lower losses when times are bad. It’s the only way though, because how do you know when the good times are turning bad and the bad times are turning good? This was a rhetorical question, but the answer is you don’t!

By preparing you can:

• Ensure you have multiple sources of income in case of a job loss

• Ensure you have a well diversified investment portfolio that you are happy with during both good and bad times

• Not take your job for granted and always be the first to impress your boss.

• Have an adequate emergency fund

• Be appropriately insured

• Keep your expenses as low as practical, or the ability to reduce expenses, so you can weather bad times for longer

• Pay down your debts
  

It’s funny how advice changes with the economy, depending on the confidence or fear of the time.

The basics should never change though. You should always be a good employee, with good insurance cover, good emergency savings, and sound investments. An all-weather plan is the best way to prepare for all types of economic seasons. Not a plan that flip flops between seasons, because the season can easily change with no warning, leaving us in our birthday suits in the middle of winter.

If you need an investment plan or recommendations , then get in touch today.

The information contained on this site is the opinion of the individual author(s) based on their personal opinions, observation, research, and years of experience. The information offered by this website is general education only and is not meant to be taken as individualised financial advice, legal advice, tax advice, or any other kind of advice. You can read more of my disclaimer here