When life throws a curveball at your investment timeline

You are the type of person who always likes to plan: at what age you will marry, when you will buy your first home, how many children you’ll have, where your career will be in ten years, and when you can look forward to retirement. But sometimes, life throws a curveball, and your best-laid plans — including your investment plans — get sidetracked.

In my experience, there are four major curveballs that can impact even the best of financial plans. These are unexpected job loss, unexpected health crisis, unexpected major home or car repairs, and poor portfolio design. While they may be out of your control to some extent, there are concrete steps you can take to mitigate the negative effects on your investment timeline.

Job loss. Last week, you were called in to the boss’s office and informed that your position had been eliminated. You left in disbelief, wondering how you would meet all of your expenses, let alone continue building a portfolio. In a situation like this, you will need to sit down with pen and paper and look hard at numbers. Your current budget will have to change; you will have to prioritize your immediate expenses (rent, food, utilities, insurance, etc.) over paying down debt. You will need to rework the rest of your budget, trimming back to save on all unnecessary expenses (entertainment, dining out, clothing) and perhaps even eliminate some altogether (vacation, major purchases). Keep your savings and credit line open. As soon as you are eligible, apply for unemployment benefits. Importantly, make sure that your medical insurance doesn’t lapse even though saving on monthly premiums might be tempting. Lastly, do not cash in your current 401(k); let it ride until you can compare plans with that of your future job. Try not to get too stressed . ... This might be the sort of surprising scenario wherein you find yourself better off in a new position than you had been previously. Health crisis. One minute you are fine; the next, you or a family member are grappling with an unexpected health issue. If a long absence from work is required, consider returning to your job gradually. Research government programs such as the Americans with Disabilities Act, Family and Medical Leave Act, and state laws to see whether you might be eligible for coverage. Carefully read over your insurance plan benefits. Do you have disability insurance, and what is the waiting period before you can

collect?

Major repairs. Your home has flooded, and you’ve never gotten around to purchasing flood insurance; or, perhaps you’ve had a car accident. This is where your emergency reserve comes in. You, the practical planner, have put aside a designated amount of cash for this type of situation. However, if you don’t have an emergency stash, there are steps you can take to lessen the impact. Try to negotiate a payment plan with the mechanic or vendors; prioritize the necessary repairs. You’ve remediated after the flood, but perhaps you can hold off on repainting or refurnishing for now. Or, your car radiator might need attention, but can you live with a dented bumper for a while? Poor portfolio construction. Poor portfolio decisions often go hand in hand with an uncooperative investment climate, an example of which was the “lost decade” of December 31, 1999, through December 31, 2009, when the S&P 500’s total return was less than zero percent over ten years. Too much stock in one company (i.e., most commonly, too much stock in your employer) or not being properly diversified (i.e., you are up to your eyeballs in tech stocks of the late 1990s) are examples of poor portfolio construction. Both of these mistakes can extend your working years because your investment portfolio value isn’t adequate to fund your retirement through your and your partner’s/spouse’s life expectancy. At some level, it is out of your control — even well-diversified portfolios were crushed in 2008 — but by being diversified in a manner consistent with your risk tolerance, time horizon and liquidity needs, you can reduce this risk significantly.

Whatever your circumstances, try as quickly as possible to get back on track. Return to your dollar cost averaging. Stay the course and think of the long term. The worst thing to do is to act on emotion rather than the reality of your personal finances. Whether you are facing a true obstacle to your investing, or only if your anxiety level has increased because of media headlines, it rarely pays off to act impulsively — which you’ve known all along.