Hurricanes can have a devastating impact on investments and financial assets. As hurricane 98 approaches, investors need to take steps to secure their holdings and mitigate risks. This may involve moving assets to safer instruments, hedging with insurance, or outright selling more volatile securities. With proper preparation, investors can ride out severe storms while minimizing their losses. The key is being proactive and having a disaster plan in place before hurricane 98 makes landfall.
Assess your risk exposure to markets in hurricane zones
If you hold stocks or bonds issued by companies located in areas forecast to be hit by the hurricane, you may want to reduce your exposure. Critical infrastructure like oil rigs, refineries and pipelines are especially vulnerable during big storms. Review your investment portfolio and consider cutting back positions that could face hurricane damage. This applies to real estate as well – if you own property in a coastal region, it could sustain wind and flood damage. Consider selling if the potential losses outweigh the costs of ownership.
Move investments to less risky assets
As a hurricane approaches, investors often shift capital into stable assets not tied to the storm’s path. For example, you could move some stock holdings into bonds, money market funds or cash. Although you may sacrifice some returns, it helps insulate you from steep hurricane-related losses. Many investors also shift holdings overseas if the hurricane is projected to only impact a certain region. Just remember it takes time to move money, so start early.
Hedge your risks with insurance and derivatives
In addition to moving assets, investors can hedge risks using insurance and derivatives. For real estate, make sure you have adequate homeowners or flood insurance to cover hurricane damage. For stocks, you can buy put options as a hedge – this gives you the right to sell at a set price even if the shares plunge. Other hedging tools include short-selling stock and using commodity futures to offset hurricane-related losses. Work with your financial advisor to implement an effective hedging strategy.
Have cash reserves for the recovery phase
The destruction caused by a hurricane often creates investment opportunities in the recovery phase. For example, demand for rebuilding materials may rise sharply. But to capitalize on opportunities, you need available capital. Maintain an emergency cash reserve investors can draw upon after the storm rather than tying up all capital in precarious markets. This provides dry powder to deploy into attractive recovery plays as the hurricane impacts become clear.
Hurricanes require investors to take protective steps and manage risks. Assess your asset exposure, reduce vulnerable investments, hedge with insurance, maintain cash reserves and be ready to capitalize on recovery opportunities. With proper preparation, portfolios can weather even severe hurricane seasons.