HOW TO CREATE A RESILIENT FINANCIAL WAR CHEST
Investing might occasionally resemble a crisis management simulation. This has been particularly true recently due to threats to portfolios from the US-China trade war, COVID-19, and the conflict in Ukraine.
Investors face risks such as panic selling during a market collapse, overspending, or keeping too much cash on hand during periods of high inflation in addition to these external dangers.
This confluence of dangers emphasizes the necessity of measures that support financial resilience. A comprehensive strategy for building financial resilience should increase the likelihood that an investor will reach their financial goals, which may, for instance, require taking on greater risk.
What is financial resilience?
Financial resilience is a measure of how robust a financial plan and money are to shocks.
We all have individual financial objectives. Some short-term objectives might not need a lot of planning or money. The expense of replacing a hot water boiler would be simple to cover for many investors.
Long-term financial goals are typically established by investors and business owners. Achieving these long-term goals will likely require both a financial strategy and the funding necessary to implement them. Spending from income or selling off assets gained over time are two possible sources of funding.
What does it mean for a business owner or investor to be financially resilient?
There is no precise answer. Some people define financial resilience as the capacity to alter their objectives. if the stock market underperforms forecasts or if the raise at work never happens.
If their portfolio generates the returns required to meet a financial goal when it's needed, others may view them as financially resilient.
Perceived safety and the concept of financial resilience are interrelated. However, limiting safety to only keeping low-risk assets like cash may be a mistake, particularly when working toward distant goals.