Economic Lessons from Mother Nature

4 tips to build a weather-proof portfolio

On June 14, 1988, a small fire started on Storm Creek, just north of Yellowstone National Park. Other small fires followed.

The worst drought since 1934, scorching temperatures and high winds made fires spread in an unprecedented fashion.

When all was said and done, the Yellowstone fires of 1988 affected about 36 percent of the park, the U.S. government spent $120 million fighting the fires and 25,000 people assisted in putting out the fires.

Despite fears that Yellowstone would lose visitors and majesty forever, the park has improved with new growth, new vistas and new species of plant life.

The Yellowstone fires of 1988 and the market crash of 2008 have similarities — what at first seems like a tragedy turns into a healthy outcome.

“When Yellowstone burned, everyone thought it was over. But you go up there now and some would argue it’s more beautiful than before.” says Brayden Brucker, a financial adviser with Utah Community Investment Services, which is associated with Utah Community Credit Union in Orem.

The economic “fire” will clear the path for better vision, positive adjustments and sounder strategies.

Here are four tips for weathering the economic firestorm and coming out greener in the end.

Build (or rely on) a strong financial foundation
When stock prices are dropping and media outlets (except for Utah Valley Magazine) are screaming that the world is ending, people question investing in Wall Street (or real estate or, well, you get the picture). That 401(k) that seemed like a no-brainer is hemorrhaging money, and you wonder if you should take it out and bury it in the backyard. If a plan is in place, Brayden says, “No.”

“Any type of portfolio starts with a plan — an objective,” he says. “You have to ask yourself if the objectives have changed. When you developed the plan, you discussed acceptable risk. If you’re still within that plan, hold strong.”

Use a (plan) builder
A financial adviser is never more important than when situations are less than ideal.

When the market is strong and the economy is going gangbusters, people often feel they don’t need a professional, qualified financial planner. However, when investing becomes more difficult it’s imperative to have a good captain steering your ship.

“Times like this always cause you to re-evaluate your situation,” Brayden says. “Bringing in another set of eyes can help you find holes in the ship.”

Understand the length of your journey
Young investors often look at downturns in the market as great opportunities. However, people closer to retirement may need to employ a different strategy.

“Younger people can buy more for less,” Brayden says. “However, for clients closer to retirement, things change. You may need to institute more defensive strategies. There are less risky, solid investment options – like CDs and money markets – that will still bring you a return without having as much volatility.”

And it’s for those closer to retirement that the second set of eyes is even more imperative.

Learn from this downturn
“We learn that the sound principles of diversifying, having emergency savings and living within our means is important,” Brayden says.

Riskier investment options that may have earned big gains in the short term can be the same ones bringing big pains now.

The New Year gives individuals pause, allowing them to plan and set goals. If you haven’t developed an investment plan, if you don’t live within your means or if you don’t have the right insurance in place to protect yourself, now is a good time to re-evaluate.

“We have some storm to weather, but the clouds will lift,” Brayden says. “As we look back at this time – and we will look back at this time – those who stayed the course will be glad they did.”

And from these “fires” will sprout shoots of new economic opportunities.

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