Much of life is wonderful, marked by joy, health and abundance. But only the foolish or naive believe life on Earth is all roses and no thorns. When tough times come, tough people usually persevere and prevail. But none of us is strong and smart and successful all the time.

Thankfully, there are four financial steps we can take — preferably when times are good and there’s minimal economic pressure on us — to raise resilience and sustain stamina in preparation for life’s eventual trials:

1. Buy sufficient life insurance with TPD (total permanent disability) riders;

2. Buy appropriate levels of general insurance for accidents, theft, fire, flooding, hospitalisation and medical cover;

3. Diversify your wealth accumulation portfolio across three, four or five asset classes; and

4. Fill your EBF (Emergency Buffer Fund) with enough — and ideally more than enough — liquidity.

If you would take action in all four areas, focusing most on the one where you are currently most ill-prepared, the time you invest reading and rereading this column and taking concerted action will go a long way towards disaster-proofing your life.

We can never fully (100 per cent) shield ourselves from all the “slings and arrows of outrageous fortune” (borrowing Hamlet’s famous words from Shakespeare’s even more famous play). Still, we can take at least the financial sting out of — I estimate — 75 per cent to 90 per cent of the bad stuff life intermittently hurls at us!

Near the end of this column, I will elaborate on the EBF-related step. Before that, though, here are some brief pointers to help you with my first three defensive steps pertaining to life insurance, general insurance and portfolio diversification.

Defensive steps

When it comes to life and general insurance coverage, understand that the foundational premise of insurance is risk transference. When you opt to transfer some forms of risk such as dying prematurely or being seriously disabled or having an accident or being hospitalised, you’re seeking to do so because the financial impact of suffering any such calamity can be massive.

Through the mechanism of an insurance policy you — along with other smart, likeminded risk transferors (commonly called policy owners) — pay (usually) customised insurance premiums that are a small fraction of the possible payout from an insurance company to you. This situation works because the Law of Large Numbers applies to statistically unlikely triggering events (such as premature death or critical illness or a break-in at home).

Therefore, on your own or more conveniently with the help of a trusted insurance agent or financial advisor or financial planner, buy appropriate types of policies and coverage amounts.

As I write this, equity markets are soaring and have been doing so for a while. But what goes up will eventually come down before it goes up again! This repetition is unending because it is linked to mob psychology, cyclical economic conditions and the business cycle. Therefore, I recommend you invest broadly — say across three, four or five asset classes — and most definitely across geographic regions.

My value-added advice today is for you to diversify your entry into so-called risk-on asset classes over a reasonable length of time ranging from two to five years. During that time, the bulk of your investment funds may be parked in generally safe risk-off asset classes like cash (money market funds and bank deposits) and fixed income (bonds and bond funds). You may then wish to gradually (say once a month using some sort of automatic facility) move that money over, say, 24 to 60 months, into risk-on assets in a canny and patient attempt to lower your weighted cost of entry into the more exciting price-oscillating risk-on asset classes.

As I’ve written here in the past, those risk-on asset classes that hopefully allow you to beat inflation over the long haul are equities, investment real estate, and alternative investments (alts) like commodities, derivatives and structured products. Again, you can choose to do all this by yourself or with the help of an investment or financial planning professional.

Importance of liquid cash

Finally, the best way I know to reduce internal fear and stress of the financial sort arising from real life shocks, scares and emergencies is to have sufficient excess cash sitting outside of your diversified wealth accumulation portfolio. The general guideline I teach my clients and seminar audiences is to have between three and twelve months’ expenses, depending on your circumstances.

Global, regional, national, family and personal crises occur (we hope) infrequently. But when they do happen, not having enough “liquid” cash is terror-inducing.

While we often can’t do much to reduce the unknown frequency of those crises, we can massively minimise their severity if we exercise discipline over the next, say, decade to build appropriately sized EBFs or Emergency Buffer Funds. (For guidance on this vital step toward financial robustness and economic maturity, study my online article on financial safety nets at

Hint: Focus not on receiving a high yield on your EBF; instead insist on immense safety and quick access to your money.

I hope my guidelines help you to disaster-proof your life! Don’t procrastinate; pick one area to act on and then begin working on it today. Please, for your own sake.

© 2017 Rajen Devadason

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