Articles of the Month
IS YOUR BUSINESS PROTECTED IF DISASTER STRIKES?
Is Your Business Protected if Disaster Strikes?
A disaster plan can help your business survive a worst-case scenario.
What would happen to your business after a fire, a massive data breach or the sudden loss of a key employee? Would it recover? How long would it take? If you’ve never really thought about the answers to these questions, it’s time to make a disaster plan.
Operating your business without a disaster plan is like driving without insurance: It leaves you vulnerable to forces outside of your control. Here are some steps to take to guard your business against possible catastrophes.
Identify your risks
The first thing you need ask is what are the biggest risks your business faces? Consider which disasters would be the most damaging and which are the most likely to occur.
The list you come up with will depend how your business is structured and where it is located. For example, a business that stores data on onsite servers could potentially lose more in a fire than a business that stores data in the cloud. Both may be susceptible to cyber attacks. Your business may operate in an area prone to certain natural disasters, such as flooding, hurricanes, earthquakes, tornadoes or wildfires.
As you list risks, don’t forget illnesses. Besides widespread infections that could shutter public-facing businesses—as we’ve seen with the COVID-19 pandemic—a single key worker becoming ill can interrupt operations. For a checklist of these and other risks to consider, visit the U.S. Department of Homeland Security’s Ready.gov website.
Address those risks
There may be actions you can take now to mitigate some of the risks you’ve identified. For example, you can digitize hardcopy data and store digital data on multiple servers to avoid losing vital information in a disaster. You can update your company’s digital security protocols to deter cyber attacks. You can also take steps to reduce fire hazards, such as faulty wiring, and make structural improvements to defend against extreme weather or earthquakes.
Make a plan
Mitigating these risks, of course, won’t eliminate them. Write a detailed action plan for each risk you’ve identified. For example, when planning for a hurricane in a coastal city, consider how you’ll keep employees safe, including how long before and after the storm they should remain at home. Next, consider how you will protect your property. Do records or equipment need to be moved? Do windows need to be boarded up? Who will perform these tasks?
Include a communication strategy in your disaster plan for notifying employees and customers of an emergency. Communicate the steps you are taking to address their immediate needs and keep them updated as new information becomes available. Keep an updated emergency contact list including employees, suppliers and any other professional contacts you will need to reach. Decide who is responsible for contacting them before, during and after an emergency.
Review your insurance
As you create your plan, review your commercial insurance policy for any gaps in coverage. For example, commercial property insurance typically doesn’t include coverage for flood damage. You may have to purchase a separate policy to cover some disasters. You also may want to consider business interruption insurance, which can make up lost income if your business shuts down in an emergency.
Learn about assistance programs
Even if you are well insured and have a great plan, recovering from a disaster can be difficult. Identify resources that can provide support and aid to help you rebuild. If you need to replace property that isn’t covered by your insurance, you may be able to apply for a low-interest loan from the Small Business Administration (www.sba.gov). The Federal Emergency Management Agency (FEMA) doesn’t offer direct assistance to small businesses, but may be able to provide housing assistance as well as funds to help employees cover necessities such as food, clothes and medicine.
In an ideal world, you’d never have to use your disaster plan. But by taking the time and the proper steps to prepare, you can be sure you’re doing what you can to protect yourself, your employees, and your business from the worst-case scenario of a disaster.
Sources:
https://www.sba.gov/business-guide/manage-your-business/prepare-emergencies
https://www.fema.gov/hazard-identification-and-risk-assessment
https://www.fema.gov/media-library-data/1389015304392-877968832e91898263...
https://disastersafety.org/flood/protect-your-business-from-floods/
https://www.irs.gov/businesses/small-businesses-self-employed/preparing-...
https://www.disasterassistance.gov/
https://www.sba.gov/sites/default/files/articles/sba-disaster-loans-faq.pdf
TWO STRATEGIES FOR REBALANCING YOUR PORTFOLIO
Two Strategies for Rebalancing Your Portfolio
How to bring your portfolio back in line with your goals
Your investment portfolio is more than the sum of your account balances. It represents your pathway toward important financial goals, whether a comfortable retirement or a college education for your kids.
But over time, the inevitable ups and downs of the financial markets can change the profile of your investment plan, leaving you with more risk than you’d like or less growth potential than you need. Fortunately, a strategy called rebalancing can help keep your investment plan in line with your goals.
What is rebalancing?
The centerpiece of your investment plan is your asset allocation—the mix of stocks, bonds and cash in your portfolio. The allocation you choose depends on your situation. If you’re decades away from retirement, you may want to allocate more of your portfolio to higher-risk investments such as stocks, which offer more growth potential than conservative investments such as bonds or cash. By contrast, if you just have a few years before retirement, you may want more exposure to those less-risky investments.
But while your target allocation stays constant, your actual asset allocation does not. The market’s ups and downs may cause that allocation to drift as your investments change in value. For example, a sustained stock market rally can boost the value of your stock holdings, tilting the balance of your asset allocation toward stocks and exposing you to more risk than you intended.
Regular rebalancing strategies can help bring your asset allocation back in line with your target allocation—regardless of the market’s ups and downs. What’s more, setting regular portfolio reviews means you’re less likely to make spur-of-the-moment decisions that can negatively impact your financial plan.
How does it work?
There are two main methods for when to rebalance your portfolio: periodic rebalancing and “tolerance band” rebalancing. Each can be an effective tool to manage your investments and limit your exposure to undesirable risks. Whichever method you choose, the important thing about rebalancing your portfolio is not necessarily how you do it, but your commitment to sticking with it.
Periodic rebalancing. The periodic rebalancing approach is relatively simple, requiring little monitoring and oversight.
To use this method, mark a recurring date on you calendar when you’ll analyze your investment holdings and adjust allocations if necessary. You may choose to do this annually, every six months or every quarter—it’s up to you. To make it easy on yourself, consider pegging the date you choose to another easy-to-remember date, like tax day or the end of a quarter. One note: Reviewing and rebalancing your portfolio too often can potentially be counterproductive.
Tolerance band rebalancing. Tolerance band rebalancing is a bit more intensive than periodic rebalancing. It requires a formulaic approach that demands frequent monitoring. Instead of choosing a set time to rebalance, you do so when your asset allocation changes by a specific percentage, or threshold of change.
For example, say your threshold of change is 5%, and your target allocation of stocks is 70%. You would rebalance your stock allocation when it shifts either up to 75% percent or down to 65%. This method is useful in helping you make sound investment decisions in a rapidly changing market. However it can also be more expensive than period rebalancing. During times of volatility you may end up buying and selling investments more frequently and potentially paying more in trading costs.
If your review identifies a need to rebalance, here are a couple of ways to bring your portfolio back in line: The first option is to sell investments to assets with a higher allocation and use the proceeds to invest in assets with lower allocations. Or you can simply direct new investments to those assets with low allocations to bring them back in line with your target.
Make adjustments as your goals change
Life events, like the birth of a child, marriage, divorce or a death in the family can change your investment goals and time horizon. When these events happen you may want to rebalance your portfolio, even if you’re not technically scheduled to do so. Make your adjustments and continue to use the method of monitoring that works best for you.
Regularly rebalancing your portfolio helps keep your eye on the big picture, keeping your goals and risk tolerance at the forefront of your investment strategy.
Sources:
https://www.morningstar.com/articles/962396/heres-why-you-should-rebalance
https://www.vanguard.com/pdf/ISGPORE.pdf
https://investor.vanguard.com/investing/portfolio-management/rebalance
https://www.finra.org/investors/learn-to-invest/key-investing-concepts/rebalancing-your-portfolio