Mother Nature is having a heck of a week. She started off Monday by blotting out the sun, or at least about 65% of it here in Austin. You may think she would be satisfied with scheduling a total blackout for 2024, but she decided to keep us entertained this weekend (or terrified) by whipping up a little disturbance down in the Gulf of Mexico.
If you have watched any of the breathless TV meteorologists this week, you probably are aware that Hurricane Harvey is barreling down on the Texas coast and is expected to make landfall this evening. As with most things in the media, the business of getting you to watch is based upon grabbing your attention and holding it for as long as possible. That leads to sensational predictions and worst-case scenarios being presented, which frankly can be quite frightening.
But if you know someone that owns coastal property, you may be surprised by their attitude towards the risks associated with these events. Take, for example, ATX Portfolio Advisors® client and Rockport,TX homeowner David Fournier. When I asked him about his level of concern, he responded, “Because I grew up in New Orleans, storms are common for me. They just don’t worry me that much. Besides, that’s why I buy insurance.”
How common are they? Data from the National Oceanic & Atmospheric Administration’s Hurricane Research Division shows the actual number of storms that have hit the Texas coast since 1851 is 63, or about one every 2.6 years. Major storms, also referred to as Category 3 or greater, were much less common. In fact, there were only 19 of them over that 166 year period, or one every 8.5 years. If you split the coastal regions of Texas into three geographic zones (North, Central, and South), the average zone has had a little over 6 major storms since a decade before the Civil War. That equates to one major hurricane every 26 years hitting a particular area of coastline.
For those that live or own property in coastal communities, spending a lot of time and effort worrying about something that happens once a generation may not rank high on the list of concerns, but that doesn't mean they shouldn't prepare for the worst. As Warren Buffet once said, “Predicting rain doesn’t count, building arks does.”
Building arks seems like hard work. A close inspection of the text of the book of Genesis in the Bible estimates that it took Noah, his wife, his three sons, and their wives between 55 – 75 YEARS to build their boat.
Fortunately, financial arks are not quite as, well, biblical in proportion.
In fact, you can build yours in three relatively easy steps.
- Establish ample liquidity. This can be an emergency fund of cash or credit availability (can be a line of credit or even a credit card), anything that can help you avoid having to sell assets at inopportune times. For example, how would you like to have been forced to sell stocks to replace your home's HVAC in August 2008? The amount needed can vary based on your personal circumstances, but a good rule of thumb is to have 3-6 months of expenses readily accessible for those unplanned rogue waves.
- Diversify. Allocating assets to investments across asset types, countries, and industries isn’t going to insure against losses, but can greatly reduce or even eliminate un-systemic risks. Bonds, for example, may not be very appealing due to low interest rates today, but when combined with a stock portfolio they can offer relative safe havens from the occasional volatility inherent to equities. That anchor can be very reassuring when the water gets choppy.
- Insure against catastrophe. Even though major storms don’t hit that often, when they do, the results can be catastrophic. Buy insurance for these events, such as premature death, disability, long-term care, or even longevity, to provide you (or your family) the resources to weather the worst storms.
I hope that everyone in Harvey's path finds shelter and protection, and that your property survives intact. If you need help planning for or building your ark for the next storm, get in touch.