A few weeks ago, my umbrella met its untimely demise. My two kids had a bit too much fun with it, and well, you can imagine the rest. I made a mental note to buy a new one. I even had one in my Amazon cart but never checked out.

Then came last Tuesday. It poured all day and continued when I went to pick up my kids from summer camp. As I parked, I reached for my trusty blue umbrella…that wasn’t there. So I only had one choice – make a run for it.

I wasn’t fast enough or skinny enough to run between the rain drops. I got ssssoaked. If there were any dry spots remaining, the run back to the car with the kids took care of those. Needless to say, a new umbrella was ordered that night and delivered two days later.

When to Buy an Umbrella

The best time to buy an umbrella is when the sun is shining without a cloud in the sky so you’re prepared for the next storm.

But that’s not when most umbrellas are sold. They’re sold when it’s raining, or after you’re already drenched (raises hand). Don’t believe me? Even the New York Times said so in this article published 60 years ago.

Our brains respond to pain and pleasure and unfortunately, there’s not enough pleasure in buying a new umbrella when the sun is shining. So most people buy one after the pain of getting soaked.

Investors behave in similar ways around pain and pleasure. With the S&P 500 up more than 50% since October 2022, investors have been soaking up the metaphorical sun for nearly two years.

In good times, it’s easy for investors to forget that it will rain again on their parade and their portfolios. Here are five types of umbrellas investors should consider while the sun is still shining.

Five Umbrellas for Investors

1. Rebalance your Portfolio – In the past two years, stocks have significantly outperformed bonds and cash. Growth stocks have outperformed value stocks thanks to the Magnificent 7 stocks, and U.S. stocks have outperformed International stocks. This can easily lead to your portfolio not looking anything like your target allocation. The best way to be a successful investor is be able to stay the course through the ups and downs of the market rollercoaster – rebalancing helps.

2. Sell/Reduce Concentrated Positions – Remember that stock you’ve owned for years that was at a loss that you couldn’t bear to sell at a loss? With the recent market rally, It may have recovered some or all of its losses. Or maybe it’s that Magnificent 7 stock that went gangbusters and has become an outsized portion of your portfolio. If this is you and you’re charitably inclined, consider a donor advised fund. Reducing the risk of any one stock notably impacting your portfolio is a prudent strategy because most stocks stink.

3. Life & Disability Insurance – In 2015, a friend’s wife tragically passed away, leaving behind three young children. Just last week, a neighbor’s friend died from cancer in her early fifties. No one plans to die or become disabled, but these risks are far more detrimental to your family’s well being than a market downturn if you’re not protected.

4. Estate Plan – A root canal might be more fun than meeting with an attorney to make decisions about your assets after your gone. Facing your own mortality and deciding who gets what isn’t easy. But think about all the things you do for your family. There isn’t much we wouldn’t do for them. So think about their future – can you imagine leaving your loved ones to sort through an unplanned estate and the headache of probate? Planning your estate can be a lasting, significant gift for your family during an extremely difficult time.

5. Update Beneficiaries – An advisor friend of mine recently shared a story of two clients inheriting money from an IRA of a deceased relative. One IRA had no beneficiary listed, and the other had a primary beneficiary who was already deceased. Both resulted in a lengthy, complicated process. And to make things worse, the IRAs had to be distributed over 5 years, half the normal period. Parents die, children are born, spouses die or separate. Life happens; make sure your beneficiaries are up to date.

When the Sun Disappears

Yesterday, it was 96 degrees in St. Louis, hot enough to fry an egg on the driveway. The best place to be found these days is in a pool, lake, or ocean. During the scorching summer, it’s easy to forget that winter will come again, and that same driveway will soon be covered in snow.

It’s also easy to forget amid new market highs that investing storms will return. Investors can choose when to invest in umbrellas for their financial plan – before the storm strikes or when they’re already soaked. Here’s hoping they make a better decision than I did last week.

Castle Quote: “Planning is important, but the most important part of every plan is to plan on the plan not going according to plan. A plan is only useful if it can survive reality. And a future filled with unknowns is everyone’s reality.” – Morgan Housel